International Journal of Accounting and Financial Management Research (IJAFMR) ISSN 2249-6882 Vol.

3, Issue 1, Mar 2013, 107-132 TJPRC Pvt. Ltd.

COMPREHENSIVE STUDY ON COMMON ACCOUNTING SYSTEM FOR PACS

ANIL KUMAR SONI1 & HARJINDER PAL SINGH SALUJA2
1

Research Scholar, Govt. V.Y.T. Auto. PG College Durg, Chhattisgarh, India

2

Professor, Govt. V.Y.T. Auto. PG College Durg, Chhattisgarh, India

ABSTRACT
The introduction of a Uniform Accounting System for Primary Agriculture Cooperative Credit Society (PACS) would depend upon a number of factors like adoption of Common Financial Statements by PACS, exhaustive list of general ledger heads of accounts, applicability of various accounting principles like following double entry, netting concepts, introduction of prudential norms (IRAC), viz., Income Recognition, Asset Classification and Capital Adequacy Norms. It is compulsory that the contents, format and periodicity of the financial statements with underlying basic principles of accounting indicated under the CAS and preparation and submission of the annual accounts from 2008-2009 under CAS. A large number of PACS in many States adopted double entry system of book-keeping. At present, most of the PACS are facing the problems of skilled / technical staff, proper maintenance of accounts/ registers and training courses. Therefore it is necessary to study on common accounting system. This paper attempts to comprehensive study on CAS. An Analytical Research Design is followed in the present study. Practical results show positive and effective implementation of CAS.

KEYWORDS: Common Accounting System (CAS), PACS, Accounts, Financial Statements, Management Information
System (MIS), NABARD

INTRODUCTION
One of the important components of the Revival Package announced by Government of India for the Cooperatives is development of a Common Accounting System (CAS) for PACS. The programme is designed to enhance the capital base, improvement in the management through infusion of new management tools and technology. The management tools highlight participation, transparency and accountability, through new accounting and management information system. CAS provides details on maintenance of various books of accounts so as to facilitate preparation of all prescribed financial statements properly by the PACS. The major components of CAS are: Applicability of universally accepted basic concepts and principles in the maintenance of accounts by the PACS. Adoption of standard financial statements, viz., Profit and Loss Account and Trading Account, Balance Sheet. List of a common set of General Ledger Heads of Account compatible with financial statements. Maintenance of minimum essential and Standard Books of Accounts Uniformity in financial statements coupled with adoption of certain basic accounting principles are regarded as an essential part, while the exhaustive list of general ledger accounts heads and minimum standard set of books as suggested may be taken as best practices / measures under the CAS.

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BACKGROUND
Earlier preparation of financial statements, viz., Trading Account, Profit and Loss Account and Balance Sheet as per the relevant provisions of the State Co-operative Societies Acts, instructions / guidelines issued by the Registrar of Cooperative Societies or Director of Cooperative Audit or as per the local conventions / practices etc. As such the formats in which the accounts are being maintained or financial statements are being prepared vary from state to state. It was observed that even across the states, sometimes standard accounting systems do not exist. Further, IRAC norms are being followed by PACS only in some States. In order to ensure Uniform Accounting System in PACS and preparation of common financial statements by adopt prudential norms. NABARD has devised the common accounting system. While designing the Common Accounting System for PACS, the existing systems and practices of accounting of the PACS in a number of states have been studied both under manual and computerized systems having regard to the nature and scale of business, prudential norms and best practices in accounting and their relevance to computerization and discussions held with various stakeholders such as State Cooperative Banks, District Central Cooperative Banks, Dept of Cooperative Audit, Registrar of Cooperative Societies and the Training Institutes of Cooperatives.

MAJOR COMPONENTS OF CAS

A common set of vouchers in the prescribed form for different types of transactions. Uniform and standardized set of books of accounts. Uniform / standard formats for financial statements, viz., Trading Account, Profit and Loss Account and Balance Sheet. Uniform set of registers relating to accounting transactions.

SALIENT FEATURES OF CAS

The Common Accounting system has been developed based on a set of assumptions (also known as Accounting Concepts), principles and rules. These are necessary to ensure that everyone, who maintains the accounts, understands records and interpret the transactions in the same way as they are intended to be under the accounting system. The CAS has adopted certain universally accepted concepts and principles and rules to ensure quality and transparency in maintenance of accounts. The rules for accounting are the same as applicable to double entry system of book keeping.

REVIEW OF LITERATURE
Review of previous studies with a view to identify and understand the areas already investigated relating to common accounting system. In review of literatures, an attempt has been made to review several reports, research papers, articles and circular related to CAS. The Task Force, under the chairmanship of Prof. Vaidyanathan, (August 2004), do recommended minimizing the states participation, based on review of entire structure. Further, to rejuvenate the rural Short Term Cooperative Credit Structure (STCCS), the committee formulated a practical and implement action plan and submitted final report in February 2005. Government of India accepted the recommendation of the task force. Subsequently, the stake holders had deliberations (including states) and worked our suitable modalities for implementation. Veera Shekharappa and Meenakshi Rajeev in paper Impact of Reforms in Short Term Cooperative Credit Structure: A Case Study of Andhra Pradesh The PACS are maintaining accounts information from 1-04-2009 in these

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formats. Thus, the Training Programmes on CAS to the PACS staff members are conducted as prescribed by NABARD. It is informed by DCCBs that there are no practical problems in the implementation of CAS but it is to be noted that the knowledge level of PACS needs to be improved to understand the new system. NABARD Common Accounting System The Task Force on Revival of Short-Term Cooperative Credit Structure observed that PACS, in many states, do not follow standard accounting systems and do not make adequate provisions against NPAs and follow proper income recognition norms. A large number of PACS in many States continue to adopt single entry system of accounting, even though a number of PACS in these States have adopted double entry system of book-keeping. NABARD Circular No.71/DCRR-04/2007 dated 18 May 2007 Introduction of Common Accounting System for PACS Accounting systems and practices currently followed in PACS are largely determined by the requirements of the Cooperative Societies Acts of the States concerned. However, lack of uniformity in the accounting systems and standard financial statements coupled with absence of provisioning for bad assets and other accepted practices have not only hidden their actual financial position (as has evidently got reflected in the special audits conducted under the GoI Package) but also hindered their business growth in many cases. Therefore, as envisaged in Revival Package, it is necessary that the Common Accounting System, as suggested now, is made applicable to all PACS including LAMPS and FSS. NABARD Circular No. 123 /DCRR-09/2007-08 dated 19 July 2007 Management Information System (MIS) for PACS Process of computerization in PACS is underway. CAS and MIS will be the basis for computerization in PACS. Hence it is expected that CAS and MIS are implemented concurrently. NABARD Circular No. 157 /DCRR- 15 /2007 dated 23 August 2007 Manual on Common Accounting System (CAS) for PACS An operational Manual has now been prepared for easy handling of CAS. The objective of the Manual is to guide the PACS in maintenance of books of accounts and preparation of financial statements as per CAS guidelines. NABARD Circular No.197/DCRR-24/2007-08 dated 12 October 2007 Management Information System (MIS) for PACS various suggestions has been received for prescribing some more statements so as to make MIS more effective. Keeping in view the suggestions, two additional statements have been prescribed as a part of MIS for PACS Financial Ratios (annual) and Cash Flow Statement (Monthly). NABARD Handouts-Cum-Work Book on Common Accounting System In certain states, some societies follow single entry system while some follow double entry system. Some societies, which have introduced double entry system, follow single entry system for certain transactions and double entry system for other transactions. For such societies, switching over to CAS means adoption of uniform accounting practices based on double entry system. National Implementing and Monitoring Committee (NIMC), as decided in the second meeting on 7 September 2006, PACS are required to prepare the financial statements as indicated in the CAS guidelines to ensure consistency, transparency, data build-up and comparability of the PACS while adopting basic / standard principles of accounting, so that the annual accounts of 2008-09 are submitted as per CAS. National Implementing and Monitoring Committee (NIMC) in its third meeting held on 19 January 2007 had decided that PACS in the country would have a Common Accounting System (CAS) along with MIS and Internal Control System (ICS). Responsibility for the design of CAS, MIS and ICS devolved on NABARD.

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OBJECTIVES OF STUDY
Understand the concept of Common Accounting System List out the various Heads of Account and formats involve in book keeping. Explain the various books of account and registers prescribed under CAS. Describe preparation of Trial Balance, Trading Account, Profit and Loss account and Balance Sheet. Explain the importance of MIS developed with CAS.

HYPOTHESIS OF STUDY
Common accounting system is landmark in changing the accounting system followed by PACS. The easy comparison of financial statements of PACS in sates and throughout India. Common accounting system followed and adopted double entry system. Common accounting system has effective in management information system.

PROBLEMS OF STUDY
First and important problem for study is collection of formats of CAS was difficult, time taking and laborious task. Information from PACS, cooperative department and NABARD was difficult to be obtained. Frequent number of visit was made to PACS and cooperative department to collect required information and format.

SIGNIFICANCE / IMPORTANCE OF STUDY

The study is significant to evaluate the accounting system under CAS. The results of the present study are useful to PACS in their efforts to improve the working of present system. It is useful to the academicians and students in their study on CAS.

SCOPE AND LIMITATIONS OF STUDY

The present study deals with the accounting system followed under CAS. This study is limited only to the common accounting system, other guideline / norms under cooperative act / rules ignored. The information is collected from cooperative department and NABARD only. Findings may always be relevant to other state / country.

RESEARCH METHODOLOGY
The methodology adopted for study is mainly theoretical. An analytical research design is followed in the present study. The study is mainly based on secondary data which is collected from cooperative department and NABARD.

ACCOUNTING SYSTEM
An accounting system is a series of tasks in an entity by which transactions are processed as a means of maintaining financial records, Such a system should recognize, calculate, classify, post, analyze, summarize and report transactions. An accounting system should lead to proper recording of transactions entered into by the business during the

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period of the accounts and drawing up the final statements viz., the Balance Sheet and Profit Loss Account, such that these exhibit truly and fairly the profitability and the financial position of the business to which they relate. Common Accounting System for PACS has been developed based on sound and widely accepted principles and concepts of accounting. The term maintaining or maintenance of accounts means recording the transactions in the books of accounts as per the prescribed procedures and periodically reconciling them to see whether the transactions have been correctly entered or not and also to prepare statements.

MEANING OF ACCOUNTING
Accounting or Book Keeping is the science and art of recording and classifying business transactions in a systematic manner and preparing summaries of the same for determining year end profit or loss and the financial position of the concern. It involves collection, recording, classification and presentation of financial data for the benefit of management and outside agencies such as shareholders, creditors, bankers and government.

BASIC ACCOUNTING PRINCIPLES AND POLICIES FOR CAS

Accounting Assumptions Going Concern The society is viewed as a business concern that will continue its operations in the foreseeable future. This implies that the entity does not intend to, nor will it be necessary to, materially curtail the scale of its operations or be liquidated in the foreseeable future. Consistency It is assumed, the accounting policies adopted are consistent from one period to another. Business Entity It is distinct from its members i.e., it is a separate entity even though it has been formed by its members. Accounting Period Accounting transactions will be done for a specific period of time, usually for one year periods, say from April of one year to March of next year. Money Measurement The transactions can be measured in terms of money inflow or outflow. Dual Aspect Every transaction recorded in the books will have two aspects viz., debit and credit for identical and equal amount. For e.g., if a loan is given, there will be an increase in the loan issued account and decrease in the cash balance. Accrual Revenues and costs are recognized as they are earned or incurred and not as money is received or paid, and are recorded in the accounting records and reported in the financial statements of the periods to which they relate. Non-Credit Businesses PACS is a business entity undertaking both credit and non-credit business. Non-credit businesses of the PACS are divided into five broad groups depending upon the nature of activities and materials the PACS deal in. These groups are for trading in: Agricultural inputs, fertilizer, seeds, pesticides. PDS commodities (Ration) Non-PDS consumer items;

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Food grains and other commodities under Govt. Procurement Schemes. Socially relevant schemes like Mid-day Meal Scheme. In reporting all business transactions of the PACS, the intention is to exhibit a true and fair picture of the

profitability and financial position of the business. Double Entry System Every business transaction involves the transfer of money (or moneys worth) from one account to another and, thus, the transfer necessarily involves two accounts in opposite directions. The double entry system of book keeping records both the aspects of every transaction and, therefore, follows the rule that every debit must have a corresponding credit and vice versa. This rule helps to check the arithmetical accuracy of records by preparing the trial balance statement. The two elements of every transaction must be grouped under three types of accounts and each type of account has its rules for recording the debit and the credit aspect of the transaction. All transactions will have a debit and a credit voucher for equal amounts. The two principal types of accounts are (1) Personal Accounts (2) Impersonal Accounts. Impersonal Accounts are sub-divided into (1) Real or Asset Accounts (2) Nominal Accounts. Personal Account contains a record of transactions with a 'person' that could be an individual, group, society, bank etc. Real Accounts are accounts of properties or assets and contain a record of purchases and sales of the properties or assets, like land, building, goods, cash etc. Nominal accounts are accounts of expenditure and income and record gains and losses. The accounting rules to be followed for the three types of accounts are: Types of Accounts Personal Real Nominal Rules of Entry Debit Credit Receiver Giver What comes in What goes out Expenses and losses Incomes and gains

Accounting Principles Double-entry book-keeping system. All transactions to have debit and credit voucher of equal amount. Distinctions to be drawn between capital expenditure and revenue expenditure and capital receipts and revenue receipts. Financial statements must be prepared on historical cost basis and should conform to statutory provisions and practices. Investments / stock of goods must be valued at the lower of cost or market value. Book debts must be valued only at the realizable amounts and in accordance with regulatory norms / guidelines. Expenditure and income to be treated on accrual basis. Provisions for doubtful advances must be made to the satisfaction of the auditors and in accordance with guidelines issued by the regulatory authority. Unsold stock at the end of the year should be brought into accounts and valued on a recognized basis that is consistently being followed in the organization. Premises and other fixed assets must be accounted for at historical cost.

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Depreciation should be provided for on depreciable assets on straight line or diminishing balance method, on a consistent basis.

Provisions for gratuity and provident fund benefits to staff are to be made on accrual basis. Separate funds for gratuity and provident fund are to be created and should not be mixed with the funds of the PACS.

A clear demarcation to be made in regard to provisions and contingencies on the one side and reserves on the other. While provisions and contingencies are to be made from Profit and Loss Account, statutory and other reserves are made out of appropriation of profits.

The net profit disclosed in the Profit and Loss account must be computed after provision for standard loans, bad and doubtful debts, provision for overdue interest, depreciation / erosion in the value of securities and other assets, transfers to contingency funds and other usual or necessary provisions.

Prudential (IRAC) norms are to be adopted.

BOOKS OF ACCOUNT
The books of account maintained by PACS are a means to facilitate proper recording of all transactions in conformity with the accounting principles and policies followed by PACS. Book keeping essentially involves recording of day-to-day business transactions in a set of books called Books of Accounts in a systematic manner. The set of books prescribed for PACS under CAS can be classified into two categories viz., (1) Books of original entry or primary entry, viz., Cash Book, Bank Book and Day Book and (2) Books of Secondary or derived entry called General Ledger. In addition to Cash Book, Bank Book, Day Book and General Ledger, some more books and register have been prescribed under CAS. They are Subsidiary Ledgers and Registers. Subsidiary ledger is a detailed version of General Ledger Account. Registers are for exercising control over certain items of transactions. The books suggested for PACS have been organized and designed for recording accounting data pertaining to financial and non-financial activities of the PACS, mainly share capital, deposit, investment, credit and non-credit activities. Details of important books of accounts / registers are indicated in Table 1 and proforma No. of books / registers in Table 2. Table 1: Books of Accounts / Registers under CAS No 1 Main P&L / BS Head Share Capital Registers / Day Book / Ledger Share Capital Ledger Savings Account Ledger Fixed Deposit Ledger Recurring Deposit Ledger Reinvestment Deposit Ledger Monthly Interest Payment Register Borrowings Ledger Cash Book, Bank book Investment Ledger Loan Ledger (Short Term Crop Loans, Kisan Credit Card, Demand Loans, Loans against Deposit etc.) Loan Ledger (Med. Term, Long Term) Gold Loan Ledger Produce Pledge Loan Ledger Loan Disbursement Register Other Control Registers not linked to Financial Statement Membership Registers Accounts Opened and Closed Due Date Register Maturity Register for term, recurring and reinvestment Deposits quarterly Inoperative Accounts Register Due Date Register ----Maturity Register Gold Stock Register Pledged Stock Register Index of Direct and Indirect Liability (Optional) Acknowledgement of Debt Suit Filed Register DCB and overdue / NPA Reg. Insurance Policy Register

Deposits

3 4 5

Borrowings Cash and Bank Bal. Investments

Loan and Advances

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Fixed Assets Sundry Deb/Creditors Inventory Purchase and Sales Locker Rent

Table 1 Contd., The Furniture, Fittings, Office Equipment and Other Movable Assets Land and Building Register Depreciation Chart Sundry Debtors and Creditors Ledger Stock Register Purchases and sales Registers Safe Deposit Locker Operation Reg.

----Individual / Agency wise Debtors and Creditors Ledger -------------

8 9 10 11

Table 2: Proforma No. with Ledger / Register under CAS PROFORMA No PROFORMA 1 PROFORMA 2 PROFORMA 3 PROFORMA 4 PROFORMA 5 PROFORMA 6 PROFORMA 7 PROFORMA 8 PROFORMA 9 PROFORMA 10 PROFORMA 11 PROFORMA 12 PROFORMA 13 Ledger / Register Name Share Capital Ledger Membership Register Saving Account Ledger Deposit Ledger Borrowings Ledger Cash Book Investments Ledger Short-term Loan Ledger Med/Long-term Loan Register Moveable Assets Register Depreciation Chart Sundry Debtors Ledger Sundry Creditors Ledger PROFORMA No. PROFORMA 14 PROFORMA 15 PROFORMA 16 PROFORMA 17 PROFORMA 18 PROFORMA 19 PROFORMA 20 PROFORMA 21 PROFORMA 22 PROFORMA 23 PROFORMA 24 PROFORMA 25 PROFORMA 26 Ledger / Register Name Locker Operation Register Insurance Policy Register Minutes Book Sales Register Stock Register Day Book Bank Book (DCCB / Others) General Ledger Monthly Interest Payment FD Accounts Opened and Closed Gold Stock Register Maturity Register for Deposits Acknowledgement of Debt

MAINTENANCE OF DAY BOOK

Day Book is the book of original / prime entry. All transactions cash, credit, transfer (adjustment), trading, banking etc. that take place in a day are recorded in the Day Book and consolidated. The Book has two sides Receipts Side (also called Debit Side or Left Hand Side) and Payment Side (also called Credit Side or Right Hand Side). The Book contains columns for writing the particulars, General Ledger folio No. and Subsidiary Ledger folio No. It also contains three amount columns Cash Column, Transfer Column and Total Column. The Day Book minimizes the clerical work and helps in posting the transactions in ledger.

SOURCES OF WRITING OF DAY BOOKS

Cash Vouchers viz., Pay-in-Slip (PIS), Receipt Voucher (RV), Cash Withdrawal Form (CWF), Contra Voucher (CV) and Payment Voucher (PV) Transfer Vouchers, Purchases Voucher (PUV), Sales Voucher (SV), Journal Voucher (JV), Debit Note (DN), Credit Note (CN). Accounting Entries for Credit Activities Deposits Acceptance, withdrawal, interest, repayment. Borrowings Receipt, interest, repayment. Loan and advances Loan disbursement, interest, receipt of installment, written off

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Accounting Entries for Non-Credit Activities Purchases Purchases of fertilizers and seeds, purchase returns, payment to sundry creditors and Transportation. Sales Sales of fertilizers, seeds, pesticides, sales return, receipt of cash from debtors. Other incomes.

Accounting Entries for Common Activities Share Capital Shares / admission fee received, refund of share capital, forfeiture of shares, declaration of dividend, Reserves and Surplus Reserves created out of profit and loss Account, building fund creation, capital reserve creation. Establishment and Administrative Expenses Payment of establishment and other office expenses, outstanding and prepaid expenses. Fixed Assets Purchase, depreciation, disposal, sale. Investments Investments made, dividend / interest income.

LEDGER POSTING
The various transactions recorded in different books of original entry, when transferred to the ledger, automatically get themselves classified and summarized under different heads of account. This process of recording of transactions in the ledger is called posting.

ANNUAL CLOSING OF ACCOUNTS

Ledger accounts of real and personal accounts are to be closed at the end of the year and the closing balances carried forward to the next year as opening balances. Balances in Nominal accounts are to be closed by transfer to the profit and loss account.

PREPARATION OF FINANCIAL STATEMENTS

Financial statements form part of the process of financial reporting and are drawn up with the objective of exhibiting truly and fairly the profitability and the financial position of the entity. Activity-wise trading accounts for each of the non-credit activities will have to be prepared in a register form before preparing the summary trading account which is given in Annexure V. The formats of the Trial Balance, Trading Account, Profit and Loss Account and Balance Sheet are given in Annexure I IV. [Figures are to be given for the current year and for the previous year for comparison].

PREPARATION OF TRIAL BALANCE

The trial balance which is an extract of balances in all the heads of account in the General Ledger, and cash and bank balances is to be drawn up on a monthly basis. The format of the trial balance given hereafter incorporates opening balances, debits and credits during the month and closing balances. The debits and credits show the movement of the account during the month and the closing balances are the trial balance figures.

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ANNEXURE I TRIAL BALANCE as on (Last Working day of the Month) Month: ___________ LIABILITIES & INCOME (Amount in Rs.) Head of Account in GL (as per the List) 1 Folio No. 2 Opening Balance at the Beginning of the Month 3 Total of Debit during the Month 4 Total of Credit during the Month 5 Closing Balance 6 (3+5-4) Year: ________

ASSETS & EXPENDITURE (Amount in Rs.) Total of Credit Closing during the Balance Month 5 6 (3+4-5)

Head of Account in GL (as Per the List) 1

Folio No. 2

Opening Balance at the Beginning of the Month 3

Total of Debit during the Month 4

Note: No additional heads of accounts of GL to be added, other than prescribed in Annexure VII

PREPARATION OF TRADING ACCOUNT AND PROFIT AND LOSS ACCOUNT

The Profit and Loss Account prepared at the close of the financial year discloses the manner in which the amount of profit or loss has been arrived at for the year. The items of income and expenditure which arose in the accounting year are detailed and grouped under relevant heads. The profit or loss under the Trading Account is incorporated into the overall profit and loss account. After the amount of profit or loss has been ascertained, it is appropriated or distributed for various purposes. The manner of appropriation of the profit is either shown as a separate section in the profit and loss account or is prepared as a separate appropriation account. Appropriation of profits involves transfers to various reserves, setting aside amounts for payment of dividends etc. The formats of the Trading Account and Profit and Loss Account may be used for arriving at the Income and Expenditure of the entity on monthly basis. ANNEXURE II TRADING ACCOUNT For the Month of __________________Year___________ Amount (Rs.) Current Previous Year Year Amount (Rs.) Current Previous Year Year

Particulars 1. Opening Stocks 2. Purchases A/c 3. Transport and other exp. on purchases 4. Salary for Salesman / Manufacturing wages 5. Factory expenses 6. Insurance- Stocks/Godown 7. Godown Rent 8. Electricity Charges 9. License Fee

Particulars 1. Sales A/c including Sales Tax 2. Commission 3. Compensation 4. Gunny Bag Sales 5. Other Trading Income 6. Closing Stock

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ANNEXURE II Contd., 10. Interest for borrowing for the non-credit activities 11. Other expenses 12. Trading Gross Profit 7. Trading Gross Loss carried to main P & L A/c carried to main P & L A/c Total Total *This is a composite format of manufacturing and trading profit and loss account relating to all activities. Where appropriate, separate accounts may be drawn up for manufacturing and trading ANNEXURE III PROFIT AND LOSS ACCOUNT For the Year Ended 31st March 200________ Amount (Rs.) Current Previous Year Year Amount (Rs.) Current Previous Year Year

Expenditure 1. Gross loss transferred from Trading A/c 2. Interest (paid and payable)

Income 1. Gross profit transferred from Trading A/c 2. Interest on Loans & Advs. (received and receivable) 3. Income on Investments 4. Rental Income 5. Admission Fees 6. Miscellaneous Income

3. Establishment and other Expenses 4. Rent, Taxes, Electricity, Repairs Costs on Premises 5. Insurance 6. Law Charges 7. Postage & Telephone Cha. 8. Printing and Stationary 9. Audit Fee 10. Vehicle Expenses 11. Other Expenses 12. Traveling & Conveyance 13. Depreciation on Property 14. Other Expenses 15. Provision for 16. Profit for the Year Total * Applicable to PACS under two-tier system.

7. Loss for the Year Total

Appropriation of Profits Amount (Rs.) Current Previous Year Year Amount (Rs.) Current Previous Year Year

Expenditure

Income

1. Accumulated losses 1. Balance of profit (previous year) (previous year) 2. Profit for the current year 2. Profit transferred to 3. Unclaimed dividend app. 3. Balance of profit 4. Balance of losses carried to carried to Balance Sheet Balance Sheet Total Total ** Wherever the unclaimed dividends are not likely to be claimed by the share holders, such amounts can be appropriated.

PREPARATION OF BALANCE SHEET

The Profit and Loss Account is accompanied by a Balance Sheet that shows the financial position of an entity as on the date of the Balance Sheet. The Balance Sheet is a classified summary of the balances of assets and liabilities

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remaining open in the General Ledger after all the income and expenditure accounts have been closed by transfer to the Profit and Loss Account. It shows the financial position of the business at a given date by disclosing the amount of capital contributed, how the same has been invested and the values of assets and liabilities of the business as at the close of the period. Understandability, relevance, reliability and comparability are the four principal qualitative attributes that make the statements useful to stakeholders. Application of these qualities results in financial statements that present a true and fair view of the financial position and performance. ANNEXURE III BALANCE SHEET As on 31st March (Year) 31st March 200 (Current Year) (Amount in Rs.) 31st March 200 (Previous Year)

No 1 2 3 4 5 6 7 8 9

Liabilities Capital Reserves and Funds (created out of surplus of PACS) Profit and Loss Account (if closing bal. is profit) Grants and other Funds Deposits Borrowings Other Liabilities Bills for Collection (being receivable as per contra) Branch Adjustment Account Total

Breakup

No 1 2 3 4 5 6 7 8 9 10 11

Assets

Breakup

31st March 200 (Current Year)

(Amount in Rs.) 31st March 200 (Previous Year)

Cash in Hand Balances with DDC Bank / SCB Balances with other Banks / Institutions Investments Loans and Advances Closing Stocks Fixed Assets (net of depreciation as per chart) Other Assets Bills Receivable (as per contra) Branch Adjustment Accounts Profit and Loss Account (if closing bal. is loss) Total * Applicable to PACS under two-tier system Note Under Others, against various items of liabilities and assets only one amount will have to be shown. If there are more that one items under Others, the same may be shown in the Annexure. Details of Sundry Creditors, Sundry Debtors etc., as specified in Balance Sheet may be given in the Annexure.

PERIODICITY FOR FINANCIAL STATEMENTS

The trial balance, trading account and profit and loss account may be prepared on a monthly basis while the profit and loss appropriation account and balance sheet may be prepared on a yearly basis.

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ANNUAL REPORT
It is necessary that the PACS also prepare Annual Report incorporating therein important developments in the society covering total members, enrollment of new members, borrowing members, members retired during the year, changes in the Management Committee and holding of MC meetings as per byelaw, growth of deposits, advances and profit, issue of Kisan Credit Cards and ST-SAO loans disbursed through KCC, loans issued to SC / ST and women beneficiaries, maintenance of SHGs and Farmers clubs etc., as per the provisions of the Cooperative Societies Act along with the financial statements of PACS. The copies of financial statements of PACS may be supplied to the members. A copy of the Annual Report may also be displayed on the society premises for information of the members and others.

FORMATS / VOUCHERS OF BOOK KEEPING UNDER CAS

Appendix 1 Format of Cash / Bank Receipt Voucher (RV) GREEN Appendix 2 Format of Cash / Bank Payment Voucher (PV) RED Appendix 3 Format of Contra Voucher (CV) FAINT BLUE Appendix 4 Format of Purchases Voucher (PUV) (Credit Purchase) RED Appendix 5 Format of Sales Voucher (SV) (Credit Sales) GREEN Appendix 6 Format of Journal Voucher (JV) SAFFRON Appendix 7 Format of Debit Note / Credit Note (DN / CN) Appendix 8 Format of Cash withdrawal form (CWF) WHITE Appendix 9 Format of Pay-In Slip (PIS) YELLOW Annexure I Trial Balance Annexure II Trading Account Annexure III Profit and Loss Account Annexure IV Balance Sheet Annexure V Trading Accounts for Different Non-Credit Activities Annexure VI Steps for preparation of Financial Statements, Explanatory Note and Annual Report Annexure VII List of Heads of Account in General Ledger Annexure XVIII Financial Ratios Annexure XIX Cash flow Statement

STEPS FOR PREPARATION OF FINANCIAL STATEMENTS AND ANNUAL REPORT

Part 1 Steps for Preparation of Financial Statements of PACS Logical accounting steps / preparation of voucher are given in Table 3.

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Table 3: Preparation of Voucher S. No. 1 Activity Voucher Preparation Description Voucher is a primary document, a piece of substantiating evidence; a proof; or, a written record of expenditure, disbursement, or completed transaction; The first step in Book Keeping starts with voucher preparation. Once the voucher is prepared, it has to be approved / authorized by designated authority for its completeness. Once the voucher is complete in all aspects the actual transaction i.e. expenditure disbursement etc takes place On the basis of the voucher, the books of original entry, i.e. subsidiary books, registers, personal ledgers are updated. Posting is the transfer of accounting entries from a journal of original entry into a ledger book, in chronological order according to when they were generated. From the subsidiary books and personal ledgers, entries are posted to respective general ledger accounts that contain all of the financial accounts of a business; contains offsetting debit and credit accounts (including control accounts).

2 3 4

Voucher Authorization Disbursement / Collections Voucher Entry

General ledger Posting

Closing the books of accounts. Preparation of trial balance. Preparation of trading account, profit and loss account and balance sheet.

Part 2 Explanatory Note to the Financial Statements of PACS Capital reserve Building fund Recapitalization fund Investments Expenditure and income Insurance and rent of godown Loans and advances Closing stock

Part 3 Preparation of Annual Report

NORMS TO BE KEPT IN VIEW WHILE PREPARING OF FIANANCIAL STATEMENTS

Activity-wise trading account has to be prepared in respect of each non-credit activity. Trial Balance, Trading Account and Profit and Loss Account are to be drawn up on a monthly basis. At the end of the year, a Trading and Profit and Loss Account is prepared for the entire period of one year. Profit or Loss in the Trading Account is to be incorporated in the Profit and Loss Account. Profit earned is appropriated into various accounts.

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Appropriation of profit is shown as a separate section in Profit and Loss Account or a separate Account is to be prepared.

Balance Sheet is to be prepared on a yearly basis giving the position as at the last of the year. Balance Sheet has to disclose a true and fair view of the financial position of PACS as on the date. Clarity, relevance, reliability and comparability are the four qualitative aspects to be kept in view while preparing the financial statements

Books of Accounts are to be closed as at the end of the year. Annual Report is also to be prepared after finalization of annual accounts prepared after finalization of annual accounts

HEADS OF ACCOUNTS IN GENERAL LEDGER

The account heads in the General Ledger are drawn up in line with the items appearing in the Balance Sheet, Profit and Loss Account and Trading Account suggested for PACS. The account heads fall under five main groups, liabilities, assets, expenses, income and trading. In cases where the societies require disaggregated data pertaining to account heads in the general ledger, PACS will be required to maintain suitable subsidiary account heads for recording the same. All ledger accounts should have the name of the account and the page or folio number for identification and reference. In respect of each transaction the information must be given- date, particulars, folio of the book of prime entry in which the original entry exists, amount, whether debit or credit and the resultant balance. The chart of accounts suggested for PACS is designed to:Ensure uniformity and common understanding of accounts; Guide in the installation of accounting and internal control systems; Enhance transparency; Facilitate the analysis and evaluation of financial and management performance, monitoring, supervision and business linkages. The list of heads of accounts in the General Ledger is given in Annexure VII as under-

CAPITAL
Paid up Capital Individual Paid up Capital Government Paid up Capital Others

RESERVES, FUNDS AND GRANTS

Reserve Fund Capital Reserve Agriculture Credit Stabilization Fund

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Dividend Equalization Fund Building Fund Common Good Fund Balance in Profit and Loss Account Subsidy meant for Society Subsidy meant for Members Recapitalization Assistance Fund Contribution from GoI Recapitalization Assistance Fund Contribution from State Govt. Provident Fund Other Grants

DEPOSITS
Saving Deposit Recurring Deposit Fixed Deposits Reinvestment Deposits Other Deposits

BORROWINGS FROM DCCBs / SCB

ST (SAO) / KCC Credit Limit MT / LT Agricultural Loans MT Conversion MT / LT Reschedulement SHG Loans Non Farm Sector Loans Fertilizer Cash Credit Limit Seeds Cash Credit Limit Cash Credit Limit for Agriculture Produce Cash Credit Limit for Gold Loans Public Distribution Scheme CC Limit Consumer Commodities CC Limit Other Non Credit Activities

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Loans against Deposits with DCCB / SCB Other Borrowings from DCCB / SCB (to be specified) Borrowings from State Government Borrowings from Other Institutions (other than DCCB / SCB / State Govt.)

CONTRA ITEMS
Bills for Collection (Being Bills Receivable as per Contra)

BRANCH ADJUSTMENT ACCOUNT (Applicable to PACS that Have More than One Branch)
OTHER LIABILITIES Interest Accrued on Deposits Interest Accrued on Borrowings Unclaimed Dividend Sundry Creditors Other Liabilities.

PROVISIONS
Provision for PF / Gratuity / Bonus / Pension Provision for Standard Assets Provision for NPAs Sub-Standard Assets Provision for NPAs Doubtful Assets Provision for NPAs Loss Assets Overdue Interest Reserve Provision for overdue interest on investments Provision for outstanding Expenses Provision for Sundry Debtors for Credit Sales Provision for Sundry Debtors (Others) Provision for Depreciation in the value of Investments Other Provisions

ASSETS
CASH AND BANK BALANCES Current Account with DCCB / SCB Current Account with other banks Saving Bank Account with DCCB / SCB

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Saving Bank Account with Other Banks / Institutions

INVESTMENTS
Government and Trustee Securities Shares in Other Cooperative Institutions Term Deposits with SCB / DCCB representing Reserve Fund Term Deposits with DCCB / SCB (other than Reserve Fund) Term Deposits with other banks NSC / KVP Staff PF balance with PF Trust / as deposit with Banks Other Investments

LOANS AND ADVANCES

ST (SAO) Loans / KCC Loans Medium Term / Long Term Agricultural Loans MT Conversion Loans MT / LT Reschedulement Loans against pledge of agriculture produce SHG Loans Non-Farm Sector Loans Loans against Deposit Loans for Consumer Durables Gold Loans Loans to Staff Members Other Loans

CLOSING STOCKS
Agricultural Inputs Fertilizers Agricultural Inputs Seeds Agricultural Inputs - Pesticides Public Distribution System Commodities Non-PDS Consumer Items Food grains and other Commodities under Procurement Scheme

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Materials under Mid-day Meals Scheme Other stocks / goods / Work in Progress

FIXED ASSETS
Land and Buildings including Go downs Furniture and Fixtures Computers and Electrical Installations Vehicles Other Fixed Assets

OTHER ASSETS
Interest Accrued but not due on Standard Loans Interest accrued but not due on NPA Loans Overdue interest receivable Interest receivable on Investments. Tax Deducted at Source. Sundry Debtors for credit sales. Sundry Debtors for others Deposits with Agencies / Parties Prepaid Expenses Misc. Income receivable.

PROFIT AND LOSS ACCOUNT

EXPENDITURE Interest on Deposits Interest on Borrowings from DCCB / SCB4 Interest on Loans availed from State Government Interest on Borrowings from others

ESTABLISHMENT AND OTHER EXPENSES

Salary and Allowances (including Contribution to PF, Bonus, Gratuity or Pension Fund) Management expenses (expenditure relating to board meetings etc) Rent, Taxes, Electricity Repair Costs on Premises

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Insurance Law charges Postage and telephone charges Printing and Stationery Audit Fees Vehicle expenses Traveling and Conveyance expenses Donations and Subscriptions Depreciation on properties Depreciation in value of investments Other expenses Provisions for Standard assets Provisions for Sub standard assets Provisions for Doubtful Assets (loans) Provisions for Loss Assets ( loans) Provisions for Bad and Doubtful Debts (Others) Provisions for Bad and doubtful debts (credit sales) Provisions for Overdue Interest on loans Provisions for Overdue interest on investments Provisions for depreciation in value of investments Other Provisions

PROFIT AND LOSS ACCOUNT

INCOME Interest on Loans and Advances Dividend on Investments Interest on deposits with banks / institutions. Rental Income Admission Fees Other Miscellaneous Income (Locker Rent, Fee-based Income, Custom hiring etc.)

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TRADING ACCOUNT
Purchase of Fertilizers Purchase of Seeds Purchase of Pesticides Sale of Fertilizers Sale of Seeds Sale of Pesticides Purchase of PDS Commodities Sale of PDS Commodities Purchase of Non-PDS Commodities Sale of Non-PDS Commodities Purchase of Food grains and other Commodities under Government Procurement Scheme Sale of Food grains and other Commodities under Government Procurement Scheme Purchase of Food grains and other items under Mid-day Meal Scheme Sale of Food items under Mid-day Meal Scheme Transport / other expenses on Purchase of Fertilizers Transport / other expenses on Purchase of Seeds Transport / other expenses on Purchase of Pesticides Transport / other expenses on Purchase of PDS Commodities Transport / other expenses on Purchase of Non-PDS Commodities Transport / other expenses on Purchase of Food grains and other Commodities under Government Procurement Scheme Transport / other expenses on Purchase of Material under Mid-day Meal Scheme Salary of Salesman / Manufacturing Wages License Fee Gunny Bag Sales Impairment in Stocks Factory Expenses Commission Compensation

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Note

Other Trading Income Purchase Returns Sales Returns

Branch Adjustment Account (Debit Balance) will appear on the asset side Subsidy meant for members (at Sr.No.9 under Reserves and Grants) is in the nature of Outside liability. Profit and Loss Account (Debit balance, i.e., loss / accumulated losses) will appear on assets side of the balance sheet

Bills for Collection (being bills receivable as per contra) will appear on both sides of the balance sheet. Insurance, rent and interest expenses may be segregated between Trading Account and Profit and Loss Account as per the nature of the transaction.

If the society mobilizes the deposits other than those indicated at Sr. No. 1 to 4 under deposits, same may be shown under other deposits.

MANAGEMENT INFORMATION SYSTEM FOR PACS

Management Information System (MIS) provides information to the management to support operations, management analysis, decision making and strategic planning functions in an organization. Thus, right from operational control through management control to strategic planning, MIS provides input for management to take decisions. Management Information System is a tool for effective internal and external control through generation of appropriate information / data. It is a system which is designed to provide information to management to assist in decision making. It facilitates and supports the basic managerial functions of planning, organizing and control so that the organizational goals may be achieved efficiently, effectively and economically. MIS A tool for business development MIS for purpose oriented analysis MIS as a tool for analysis of financial performance MIS for review by external authorities

MIS STATEMENTS PRESCRIBED UNDER CAS

Under MIS, PACS are required to prepare and submit nineteen Statements periodically to various agencies. These statements are also required for the management of PACS to exercise control and take management decision. It broadly covers the following six aspects: Evaluation of financial performance Recovery position and action taken against defaulters Lending operations Resource mobilization

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Non-credit activities House keeping and others

NEED FOR REVISION / REFINEMENT OF MIS BASED ON CAS

Post reforms, PACS are expected to function as full fledged and self controlled financial intermediaries that establish their own business policies to meet the challenges of a dynamic economic environment and business models. To help decision making at PACS and at other levels including those of higher financing agencies, regulators and other agencies, there is an urgent need to have a sound and standardized MIS at PACS. An effective Management Information System (MIS) is required to evaluate the performance of PACS on an on-going basis and take timely, corrective remedial action. Information system has to be purposeful and focused to enable decision making process. It is essential for planning, developmental initiatives and internal control. Any organization comprises of the three following sub-systems: Management Sub-System comprising of planning, control and review. Operations Sub-System various segments of operations Information Sub-System inputs, processing of information and outputs

CHARACTERISTICS OF A SOUND MIS

MIS should be comprehensive and should cover all operations of PACS. It should be selective and should not be over burdened with less important or incidental information. It should be transparent and should establish relationship between input and output. It should speak about success as well as failures so that corrective action can be initiated. It should also bring out the causes of success and failure. The statements / returns should be in fixed periodicity so that there is systematic analysis and sustained monitoring over a period of time.

COMPUTERIZATION
It may be noted that CAS and Management Information System (MIS) would be the basis for the computerization in PACS. As discussed in the NIMC, the financial statements comprising the output of the CAS and a separate MIS will constitute the focus of computerization at the PACS level under the Package. As computerization in PACS in different parts of the country may be time taking, CAS may be introduced in the PACS initially even without computerization. Process of computerization in PACS is underway. CAS and MIS will be the basis for computerization in PACS. Hence it is expected that CAS and MIS are implemented concurrently. As steps are separately being taken for computerization of PACS, it is necessary that the CAS is introduced in the PACS to be used manually immediately so as to be ready for its computerization later. In order to facilitate the process of computerization of PACS, it is necessary that PACS implement CAS and MIS immediately.

SUMMARY OF STUDY (FINDINGS)

Earlier PACS across the country were using different accounting systems which did not present true and fair picture of their financial status, to address this problem a Common Accounting System (CAS) had been designed by

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NABARD which will ensure transparency and application of prudent accounting methods and this is also emendable to both manual and computerized environments. Common Accounting System (CAS) has been made applicable in many states from the financial year 2008-2009. Common Accounting System (CAS) for PACS has been designed and Manual on CAS has been circulated to all implementing States. While the process of adoption of CAS is underway in 20 States, in the other States where MoUs have been signed the RCS concerned have been advised to adopt CAS on the lines suggested by NABARD. CAS/MIS has been introduced in almost all PACS in 15 states, of these; fourteen States (except Madhya Pradesh) have printed the necessary registers for implementing CAS/MIS. In Madhya Pradesh and Meghalaya the existing stationery with necessary modification as required for CAS/MIS are being used. Registers have been printed & distribution is in progress in Bihar, Jammu & Kashmir, Jharkhand, Mizoram and Sikkim. As per the decision taken in the VII National Implementing and Monitoring Committee (NIMC) meeting held in September 2009, NABARD has finalized the Core Software and sent a CD containing the software to all 20 States that have opted for the Core software. A standardized set of MIS for PACS has been designed and circulated among RCS of implementing States to aid decision making at PACS and at all other levels including higher financing agencies, regulators and other agencies. A Handbook on MIS has also been issued. Guidelines on computerization of CAS and MIS for PACS were issued in two separate modules: (i) development, procurement & deployment of software including training on software, and (ii) procurement and installation of hardware. For guiding and monitoring the implementation of the package at national level, National Implementation and Monitoring Committee (NIMC) has been constituted. So far nine meetings of the NIMC have been held. The last meeting was held on 27 January 2011. At State level, the progress is being monitored by State Level Implementing and Monitoring Committee (SLIC) and at district levels by DCCB level Implementing and Monitoring Committees (DLICs). Twenty one States have amended their respective State Cooperative Societies Act through Legislative Process. The State Govt. of Chhattisgarh has taken a Cabinet decision approving the amendments in respect to the reform measures, as their earlier State Cooperative Societies Act has been submitted to Hon'ble President for assent.

PROBLEMS (WEAKNESSES) OF CAS CAUSES OF SLOW IMPLEMENTATION

Internal and structural weakness at primary level, lack of adequate infrastructure. Over-dependence on computerization. Restrictive provisions of common accounting system and Excessive government control. Lack of professional management. PACS still follow the traditional management techniques. Lack of proper training programme and guidance / instructions. The PACS suffered from inadequacy of trained and technical personnel. In certain states where double entry system has been introduced in PACS, there is no practice of preparing vouchers.

SUGGESTIONS (RECOMMENDATIONS) FOR IMPROVEMENT

Accountability and transparency need to be brought in the implantation of CAS. Enhancing the competitive strength in PACS by their merger and division.

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Federal organizations of PACS must give sufficient guidance / instructions and other support to their constituent societies.

Establish professional cooperative management centers and training institutes. Practice good human resource management. Strengthening management information system and database of PACS. The accounting system in all PACS needs to follow CAS in the treatment and recording of all financial transactions.

CONCLUSIONS
As the STCCS across different states have not been using a standard accounting system, the balance sheet and books of account in the structure, especially at the PACS level do not present a true and fair picture of the financial status of the individual unit. The GoI Revival Package, therefore, includes installation of a Common accounting System (CAS). At the primary level, the CAS also needs to be simple and easily comprehensible, and facilitate a sound Management Information System (MIS) across various levels of STCCS and beyond to facilitate proper and timely decisions at all levels. The CAS and MIS so evolved would form the basis for computerization of STCCS units. A Simplified Accounting System and Management Information System for PACS has been designed for adoption in the states participating in the GoI Package.

REFERENCES
1. 2. 3. 4. 5. 6. 7. 8. 9. NABARD. (2007) Common Accounting System NABARD. (18 May 2007). Introduction of Common Accounting System for PACS. NABARD. (19 July 2007). Management Information System (MIS) for PACS. NABARD. (23 August 2007). Manual on Common Accounting System (CAS) for PACS. NABARD (12 October 2007). Management Information System (MIS) for PACS. NABARD. Handouts-cum-Work Book on Common Accounting System Reports of the National Implementing and Monitoring Committee (NIMC). Various Meetings Report of the High Powered Committee on Cooperatives. (2009). Ministry of Agriculture, Government of India. Report of the Task Force (Vaidyanathan Committee). (2005) Government of India.

10. Veera Shekharappa and Meenakshi Rajeev. Impact of Reforms in Short Term Cooperative Credit Structure: A Case Study of Andhra Pradesh. Skoch Development Foundation, 1- 16. 11. www.nabard.org

NOTES / COMMENTS
In formats of Trading Account, Profit and Loss Account, Appropriation of Profits and Balance Sheet, only major heads presented on ground of length of paper. Account is the detailed record of a particular asset, liability, owners equity, revenue or expense.

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Accounting Cycle is the sequence of steps starting from opening of books at the start of a period and culminating in preparation of the financial statements for a given period. It refers to the fact that because financial reports are prepared at the end of each period (usually a year) there are a sequence of steps (cycle) taken each period that result in the reports and preparation for the next period or cycle. The cycle goes through the journal entries, adjusting entries, posting to the accounts and financial reports.

Accounting Period is the time period for which accounts are prepared, usually one year. Cooperative Year is the period commencing on the 1st April of any year and ending with the 31st March of the succeeding Year. Earlier the accounting year for societies was a year ending on 30th June or other day fixed by a particular society with the approval of the Registrar. However, with the amendment made in 1993, the cooperative year has been compulsorily made to end on 31st day of March.

Following Deficiencies in Accounting System of PACS before CAS No clear perception about capital expenditure and revenue expenditure. Non-valuation of the investments and stocks at lower of cost or market value. Sundry debtors are not taken at realizable value and but taken on its book value. Non-introduction of NPA norms and provisioning. Non-reckoning the expenditure and income on accrual basis and but reckoning on cash basis. Not making provision for bad debts as per norms. Non-provision of depreciation for fixed assets. The books of accounts are not standardized. Cash book, Bank book. Day book is not maintained. There is no uniformity in formats of financial statements prepared by PACS. Prudential norms for IRAC are not followed.