COOPERATIVE ACCOUNTING SYSTEM

 

Stewardship is a core feature of accounting for cooperatives in contrast to investment oriented accounting for capitalist companies. The right to redemption of capital in cooperatives had no parallel in investor-owned companies and is central to understanding cooperative accounting . . .

 

Because members of investor-owned companies have never had a right to withdraw their equity it is understandable that they should have been pre-occupied with the profits recorded by their company (and managers and directors may at times have been preoccupied with manufacturing such profits when they did not actually occur).

 

In contrast, members of a cooperative and their boards have, of necessity, been disciplined to keep a strong balance sheet with sufficient liquid resources to allow redemption of capital as required.

 

Profits and profitability have had less relevance for cooperators than for investors. Firstly because shares are not traditionally seen as an investment in the cooperative but as an equitable contribution to the resources needed to supply the goods or services the member requires.

 

Secondly, in contrast to investor-owned companies where profit maximization is the prime objective few types of cooperatives have objectives that can be measured in terms of profits. A housing cooperative may seek to provide affordable accommodation; a workers cooperative may seek to provide regular employment at better-than subsistence wages; a finance cooperative or credit union may seek to narrow the gap between interest charged and interest paid (profit minimization?); a supply cooperative will seek to provide inputs at the lowest cost to members and a marketing cooperative will seek to return the greatest amount to those members who have supplied the best quality products.

 

What is common to all types of cooperatives is that the board must account to members for the way in which the resources entrusted to it have been used, must ensure that equity can be redeemed when the members cease to be transactors and they must ensure intergenerational equity by not allowing one generation to enrich themselves at the expense of another generation.

 

This requires a balanced approach to reporting stewardship. Such balance requires the timely and comprehensive disclosure of revenues and expenses, cash inflows and outflows and financial position that is ‘evaluated and not merely enumerated.

 

Stewardship: The core of cooperative accounting (Journal of Co-Operative Accounting and Reporting, 2012)

 

A "Credit Cooperative is one that promotes and undertakes savings and lending services among its members. It generates a common pool of funds in order to provide financial assistance to its members for productive and provident purposes" (Art. 23, RA 9520)

 

Also, "A credit cooperative is a financial organization owned and operated by its members with the following objectives :

 

(1) To encourage savings among its members;

 

"(2) To create a pool of such savings for which loans for productive or provident purpose may be granted to its members;

 

"(3) To provide related services to enable its members to maximize the benefit from such loans.

(Art 115, RA 9520)

 

Further, Credit cooperatives may organize chapters or subsidiaries, or join leagues and federations for the purpose of providing commonly needed essential services including but not limited to the following :

 

(1) Interlending of surplus fund;

(2) Mutual benefits;

(3) Deposit guarantee;

(4) Bonding;

(5) Education and training;

6) Professional and technical assistance;

(7) Research and development;

(8) Representation; and

(9) Other services needed to improve their performance.

(Art 115, RA 9520)

 

The credit cooperative is a business enterprise that engages in economic activities that have monetary values. As a financial organization its economic activities are limited to exchange, consumption, savings, investments and income distribution.

 

These economic activities generally affect the economic resources (assets), economic obligations (liabilities), and ownership interests (equity of owners and shareholders). These activities, called business transactions, must be recorded and the changes in assets, liabilities and equity must be reported in the financial statements of the cooperative using the double-entry accounting system.

 

The double-entry accounting system emphasizes that changes in assets will result into changes in liabilities, equity or any other asset of the same monetray value. It is illustrated in an accounting equation as follows :

 

ASSETS = LIABILITIES + EQUITY

 

(Elenita S. Mantalaba, CPA, Basic Accounting For Credit Cooperatives,

Revised Edition, 2009)