We are a cooperative small business that is intended by owners to operate as a non-profit (i.e. breakeven only). We are making principal and interest payments every month on a substantial loan. Our only customers are our owners and all our owners are our customers. We charge them a cost per unit for what we produce for them. Currently, that cost per unit includes in its calculation money we need to make the monthly mortgage principal payment. When looking at our P&L, however, this accounting artificially inflates sales. Is there a better and still legal and appropriate way to collect the money from the owners to pay the mortgage payment but not have it be sales income that then has no expense to offset it?

I don't know if it's entirely too late for a response. Been a bit busy. :-)

Non-profit organizations aren't really my area, but no one else has answered this, so I'll say as much as I can.

First, non-profit does NOT mean the company is at break-even and has no profit. It means it's not in business for the purpose of making a profit for its owners. Its purpose is something charitable, educational, cultural, etc. rather than commercial. Cash flow and net income are two different things, and it's common for companies to keep profits in the company to use for various things. In this case, you need the cash flow for a mortgage payment. How would you have any cash flow to pay the loan if the company doesn't have more coming in than they are paying out? i.e. you're allowed to have profits that serve the purpose of the organization and to run. You need to make the loan payments, so having profit to cover those payments is fine. You're even allowed to pay reasonable salaries. (Not everyone has to be a volunteer.)

I know there are limits on what can be considered non-profit, and l know there's limits on those salaries (something of controversy), and limits on the amount of profit and its uses. Since that's not my area, I don't know these details. But paying a loan is certainly a reasonable use of profits. If you really want more details about all this, I'd suggest you find an accountant who has some expertise in this area.

Raptor, As an Accountant I really don't see your problem, if this enterprise is being run for the benefit of owners (members) as a cooperative then why does it matter what the total of sales is? Surely what matters is revenue is sufficient to meet the expenses including the mortgage. You could just as easily make a levy on the members to meet the mortgage and then charge less for the produce. That levy would not have to be included as a revenue item but doing this may not achieve what you want. I expect you have structured it the way you have so that those who get more product pay more towards the mortgage

When you have sales that include some recovery of capital it is to be expected that there would be a profit or surplus since revenue and expenses are kept separate from capital. As to the legality that depends on local laws. If you are a true not for profit then the form of accounting you adopt can be different such as producing a statement of income and expenditure where the concept of profit doesn't exist and you are only explaining the movement in the funds in the hands of the organisation.