ACCOUNTING FOR

CO-OPERATIVES
CO-OPERATIVES
ACCOUNTING FOR CO-OPERATIVES
A co-operative society is a legally constituted business entity formed for the
explicit purpose of furthering the economic welfare of its members and that of the
wider society by providing them with goods and services.The first co-operative can
be traced back to England.
A co-operative society may offer a variety of services to its members such as
insurance,credit, housing, agricultural supplies or consumer goods. These are tax
exempted that is they do not pay tax on surplus income or stamp duty on
instruments executed by or on behalf of a registered society. The surplus or profit
earned by a co-operative is paid back to their members based on their investment
amount.
ACCOUNTING FOR CO-OPERATIVES
A co-operative is controlled by its members and are required to be registered
under the Co-operative Societies Act. The minimum number of members required
to form a co-operative is ten and a Steering Committee (which can be five to nine
members must be elected from its members to control the affairs of the
cooperation.

The main principles of co-operatives are open membership, control by members,

fair economic participation, self rule,continuing education and information, alliance
with other co-operatives and community building.
ACCOUNTING FOR CO-OPERATIVES
TYPES OF CO-OPERATIVES
There are five basic types of co-operatives:-
1.Consumer/Supply Co-operative examples, food supply goods.
2. Financial Co-operative examples, credit unions, insurance, trust
3. Marketing/Producer Cooperative examples, agriculture,crafts, trade
4. Service Cooperative examples, utilities,housing,child care
5. Worker Cooperative examples, any type of business collectively owned by its
members or employees.
ACCOUNTING FOR CO-OPERATIVES
The financial statements for co-operatives consist of Income & Expenditure
Account, an Appropriation Account and a Balance sheet which is audited yearly.

Co-operatives are financed both internally and externally and raise capital through
external loans, surplus earnings which are not totally paid out as a patronage
dividends.
ACCOUNTING FOR CO-OPERATIVES
Please note:-

● Interest on deposits and loans by the members are expenses to the

co-operative and are debited to the Income & Expenditure account.
● Increase in membership of a co-operative are reflected as increased share
capital in the balance sheet.
● Members deposits and loans are liabilities to a co-operative and reflected in
the Balance sheet as such.
ACCOUNTING FOR CO-OPERATIVES
Appropriations of Co-operatives Surplus, these surplus are appropriated as
follows:-

● Transfer to a statutory reserve

● Transfer to special reserves
● Dividends
● Honoraria

These are all debited to appropriation account and credited to the ledger
accounts. They all have credit balances.
ACCOUNTING FOR CO-OPERATIVES
Some advantages of Co-operatives are:-

● Everyone has equal opportunity

● Each member is entitled to one vote irrespective of size
● Members are not allowed to appoint a proxy ( someone to vote on their behalf
unlike a shareholder in a public limited company)
● Financial statements are ONLY available to their members not members of
the public.
ACCOUNTING FOR CO-OPERATIVES
Disadvantages of a co-operative society:-

● The amount of return on the sum invested, very modest dividends are paid
● The members need to provide full support and commitment in order for the
co-operative to survive
ACCOUNTING FOR CO-OPERATIVES
**EXAMPLES OF THE FINANCIAL STATEMENTS WOULD BE GIVEN IN
CLASS