It is known that a non-profit organization does not pursue profit. However, the situation can occur when there will be more revenue in a given period (that is, a positive difference between income and expenses), and it will be spent only in the next period. Therefore, the profit can be reflected in the records. Can the non-profit organization make the profit in the reporting period and not break even?
Indeed, it is possible. It should be noted that the positive financial result in the accounting does not give rise to tax consequences for the non-profit organization that is included to the Register of non-profit institutions and organizations.
It is clear that everything that the non-profit organization receives (among other things its income from the business activity) is spent on financing its activities. That is, it does not set profit goals or distribute income to the founders.
Therefore, the profit is not the purpose of organization’s activity. But it is possible that in any given period there will be more revenue (that is, the positive difference between income and expenses), and it will be spent only in the next period. Therefore, the profit can be reflected in the accounting over a period of time. For example, accrued interest income or income from exchange differences, which can not be “spent”.
Or vice versa, the expenses exceeds the revenues in the current period, and such expenses will be covered only in subsequent periods. For example, suppose a non-profit organization had to write off bad receivables because the debtor was liquidated. And this led to the loss, which blocked the target revenues of the next period.
Therefore, the non-profit organizations can sometimes have a temporary positive (or negative) difference between the revenue generated and the costs incurred. However, such the positive difference (profit) is still directed towards financing the activity of the organization in the future, it is not distributed to the founders.
The profit is not a threat to the status of the non-profit organization as a non-payer of income tax (if it meets the criteria laid down in subitem 133.4 of the Tax Code of Ukraine, hereinafter – TCU, in particular, it is included in the Register of non-profit institutions and organizations). That is, the mere fact of making the profit is not a basis to charge the income tax on such amounts. It is important that the income (profit) is spent for the statutory purposes (subitem 133.4.2 of the TCU).
