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INTRODUCTION

Accounting appears to have been practiced since the beginning of recorded history. Business transactions and land sales were recorded by about 3000 B.C. Introduction of money as a medium of exchange provided the necessary impetus for the development of modern accounting. The chinese were the originator of this practice some two thousand years before it appeared in Europe. Sophisticated forms of Government accounting existed in China as early as 2000 B.C. Banking and other commercial activities led to the maintenance of accounts in ancient Greece. Romans kept their account on wax tablet which perished with the Fall of the Roman Civilization (700 B.C. to 400 A.D.) This evidence comes from the Ci Ceronian Pro Fonteio. The economic development of the middle ages helped in the development of accounting. Large scale business was carried on by banks and the Church in Europe. It is believed that the idea of double entry was evolved by the banks during 1300 A.D. The first professional organization of accountants was founded in Venice in 1581. Accounting evolved and emerged like other fields of human activity for example Law, Medicine etc. in response to the social and economic needs of the society for centuries after the system of double entry book keeping appeared, accounting was without methodology or any form of theory. It was during the nineteenth century that a move from book keeping to accounting and a move away from relatively simple recording and analysis of transaction towards a comprehensive accounting system was seen. During the end of nineteenth century it was marked by the most extra ordinary expansion of the business.

Thereafter a phenomenon common in business world grew at great speed, books related to business transaction were written, convention were followed and accounting was recognised as a system analysing and maintaining record about business. Luas F Pacioli (Italy) is considered as the father of modern accounting because his method became the model for subsequent text books during a period of two hundred years' In 1494 he published his summa which contained two chapters describing double entry book-keeping. Pope X appointed him professor of mathematics in 1514 at Rome. Other professor who assisted in developing accounting ideas included Simon Stevin and Arthur Cayley. The Latter was professor of mathematics at Cambridge University in England and wrote 'The Principles of Double Entry Book Keeping. The double entry system laid down by Pacioli was applied earlier (1563) in Europe. But in England it began to be introduced "towards the end of the nineteenth century when the growth of the corporation and introduction of income tax combined to make its virtues apparent." Modern business has continuity and never ending flow of economic activity, therefore accounting has grown to meet a social requirement and to guide the business and industry accordingly. Accounting is moving away from its traditional procedural base encompassing record keeping and such related work as the preparation of budgets and final accounts towards the adoption of a role which emphasises its social importance. During 1775-1850 the business firm laid more emphasis on the preparation of the balance sheets as the businessmen were more interested in knowing about their capital such as Assets and Liabilities. Assets were 2

valued at current value and balance sheet was prepared in order to measure the changes in net wealth. During 1850-1900 the businessmen started entering into partnership and shareholders in company and from balance sheet to income statement was prepared (Profit and loss account) as the businessmen use to know as to how much profit or loss he has suffered during the period when company form existed then it became necessary to get the accounts audited by independent outside agencies for this many institutes of chartered accountants and certified public accountant were established in countries to perform the audit function. The various principles emerged as revenue principle, cost principle and matching principle. During 1900-1950 it was noticed a revolution in accounting as large scale business became more complex new method and techniques were evolved to face the competition. It was during this time that cost and management accounting developed. Greater emphasis was laid on evolving techniques practices and systems of accounting to make them more useful in decision making. Tax accounting , tax advising and tax planning were developed during this period, to rationalize auditing techniques, audit standards and guidelines were issued in different countries. Better techniques of recording and analysis of data were introduced. During 1950-2000, accounting developed into a full fledged information system, during this period it was not regarded as an art but as a science like others social sciences many new theoretical concepts were tested and put to practice. Various accounting standards boards and committees were set up to issue statements of concepts and standards in 3

many countries International accounting was developed to harmonize accounting techniques and practices in member countries. During the seventies it was realised that business activities of an enterprise have an economic as well as social impact on employees the community consumers and society. This led to the development of corporate social accounting which is also called as social responsibility accounting or accountability accounting . During past three decades greater attention is being paid to total system planning and inter disciplinary application. The application of computer have revolutionized accounting system and techniques. Information system, information technology (IT), E-Commerce, management sciences, management service, management audit are the result of new accounting techniques and theory Accounting techniques is now becoming a multiple paradigm science. Accounting speaks about the business and often it is called as the language of business. "ACCOUNTING IS THE LANGUAGE OF BUSINESS " Accounting is a means of communicating information about a business as a language of business accounting has many thing in common with other language, the various business activities of a firm are reported in accounting statement, using accounting language, just as new events are reported in newspapers in English, language to express an event in accounting. We must follow certain rules, without following certain rules diligently not only does one run the risks of penalty for misrepresentation lying. Comparability of statement is essential to the effective functioning of a language whether it is in English or in Accounting. At the same time, language has to be flexible to adopt to a changing environment. 4

As a new language is to be learnt to converse and communicate so in the same way accounting is to be learnt and practiced to communicate events, about business Many accounting writer and researchers have referred accounting as the language of business. The role of accounting has been changing with the economic and social development over the past few centuries, the traditional view of accounting as being concerned solely with a historical description of financial activities is no longer acceptable, over a period of time new dimensions have been added to accounting discipline. Till the first quarter of this century financial statement were prepared primarily to reveal the wealth and income earned at the end of the accounting period by the proprietor of a firm. Until recently accounting was regarded as an art as well it would be clear from the following definition of accounting given under accounting terminology bulletin No.1 of (AICPA). "Accounting is an art of recording, classifying and summarizing in a significant manna and in terms of money transactions and events which are, in part at least, of a financial character, and interpreting the result, thereof." - American Institute of Certified Public Accountants (AICPA) "Are process of identifying measuring and communicating economic information to permit informed judgments and decisions by users of the information." - American Accounting Association (AAA) "Accounting is a service activity . It's function is to provide quantitative information primarily financial in nature about economic entities that is intended to be useful in making economic decisions, in making reasoned choices among alternative courses of action. Accounting 5

includes several branches for example, financial accounting, managerial, accounting and government accounting" - The Accounting Principles Board (APB) Thus, accounting is the process of identifying measuring and communicating economic information to the persons who require it such as creditors, consumers, government, researcher etc. Accounting is both science and art, it is known as science because it has a systematized body of knowledge based on certain principles which have universal application. It is also an art because it requires some amount of skill talent ability to make proper judgment of the accounting information. It is the process of recording classifying, summarizing and interpreting of financial transactions in a significant manner . Accounting refers to the application of scientific and systematic knowledge of accounting. It emphasizes on why and how to prepare books of accounts and summarize it in order to provide accounting information and to its end users. It also includes interpretation aspect of the recorded information, by the analysis of the above definition it is clear that the business transaction recorded in the books of accounts are of financial character. A transaction refers to exchange of goods or services between two parties in which one of the participant is the receiver and other the giver, An event refer to the happening of a certain in incident which is related to the business entity whether internal or external. On the other hand we have also analyzed that only those transactions will be recorded which are in terms of money if they are not in terms of money they will not fall under accounting. The process of accounting starts by first identifying the events and transaction which are of financial characters and then be recorded in books 6

of accounts, this recording is done in Journal or subsidiary books also known as primary books, every good record keeping system includes suitable classification transactions and events as well as their summarization for ready reference. After the transactions and events are recorded they are transferred to secondary book for example ledger etc. In ledger transactions and events are classified in terms of income, expense assets and liabilities according to their characteristics and summarised in Profit and Loss account and balance sheet. However, the transaction and event must have at least in part, financial characteristics for example the inauguration of a new branch of a bank is an event without having financial character while business disposed off by a branch is an event having financial characters. On the basis of the above definitions the procedure of accounting can be divided into two parts (i) Generating financial information and (ii) Using the financial information. PROCEDURE OF ACCOUNTING

Generating Financial Information

Using the Financial Information

Classifying Recording Summarizing

Analyzing Interpreting

Communication

The procedural aspects of accounting can be explained with the help of the above chart. General Financial Information:1. Recording :Recording is the basic function of accounting all the business transactions of financial characters as evidenced by some documents such as the sales bill, pass book, salary ship etc. are recorded in the books of account. Recording is done in a book call "Journal". This book may further be divided into several subsidiary book according to the nature and size of the business. 2. Classifying :Classification is concerned with the systematic analysis of the recorded data, with a view to group transactions or entries of one nature at one place so as to put information in compact and usable form, the book containing classified information is called ledger. This book contains on different pages individual account heads under which all financial transaction of similar nature are collected for example there may be separate account heads for salaries, rent, printing and stationeries advertisement etc. All the experience under these head after being recorded in the journal will be classified under separate heads in the ledger, this will help in finding out the total expenditure incurred under each of the above heads. 3. Summarizing :After recording and classification summarization is done, it is concerned with the preparation and presentation of the classified data in a manner useful to the internal as well as external users of financial statements, this process leads to the preparation of the following financial 8

statements such as the (a) Trial Balance (b) Profit and Loss account (c) Balance Sheet. 4. Analyzing :The analysis means methodical classification of the data given in the financial statements. The figures given in the financial statements will not help anyone unless they are in a simplified form. For example all items relating to a fixed assets are put at one place while all items relating to current assets are put at another place. It is concern with the establishment of relationship between the items of profit and loss account and the balance sheet is to provides the basis for interpretation. 5. Interpreting :This is the final function of accounting. It is concerned with explaining the means and significance of the relationship as established by the analysis of accounting data. The recorded financial data is then analysed and interpreted in a manner that will enable, the end users to a make a meaningful judgment about the financial conditions and profitability of the business operations. The financial statement should explain not only what has happened but also what is happened and what is likely to happen under specified conditions. 6. Communicating :It is concerned with the transmission of summarized, analysed and interpreted information to end users to enable them to make rational decisions this is done through preparation and distribution of accounting reports, which includes besides the usual profit and loss and the balance sheet, additional information in the form of accounting ratios, graphs, diagrams, fund flows statement etc. 9

The first two procedural stages of the process of generating financial information along with the preparation of trial balance are covered under book keeping while the preparation of financial statements and its analysis and interpretation and also its communication to the various users are considered as accounting stages. USING THE FINANCIAL INFORMATION :There are certain users of accounting. Earlier it was viewed that accounting is meant for the proprietor or owners of the business but changing social relationships diluted the earlier thinking. It is now believed that besides the owns or the management of the business enterprise, users of accounts include the investors, employee, lenders, suppliers, customers, government and other agencies and the public at large. Accounting provides the art of presenting information systematically to the users of accounts, Accounting provides the data which is more useful if it stresses economic substance rather than technical form. Information is useless and meaningless unless it is relevant and material to a user's decision. The information should also be free of an biases. The users should understand not only the financial results but also should be able to assess its reliability and compare it with information about alternative opportunities and the past experience. The owners or the management of the enterprise commonly known as internal users use the accounting information in an analytical manner to take the valuable decisions for the business so the information served to them is presented in a manner different to the information presented to the external users. Even the small details which can effect the internal working of a business is given in the management report while the financial statement 10

presented to the external users contains key information regarding assets, liabilities and capital are summarized in a logical manners that helps them in their respective decision making. The following chart indicates various types of users of accounting information.

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As above we have discussed that accounting is the language of business, language means the communication process, accounting language plays a dominant role as communication process, thus the use of accounting information can be done by internal and external users. Internal users :Internal Users or persons are those who work within an organisation at managerial levels and employees are considered as internal users they includes the proprietor or owner, management and employees, all of them are discussed below 1. Owners :The owners or proprietor on the basis of accounting information can know the learning capacity of the business, not only this he can also know about the financial position of his business i.e. whether he have earned profit or loss if profit is earned how much of profit is earned, if loss is suffered as to which extent the loss is suffered the owner by the accounting information can know as to how much he has to invest in business today, the owners of business is separate from business thus before investing he can see (i) Return on investment (2) Safety and security of investment. 2. Management :The management and control of a business vests in the hands of managerial body who take decisions regarding the business therefore the accounting information is very much helpful to the management in knowing the past records and taking the decision about the efficiency and stability of the business. Accounting information is of great relevance to the management in the following ways such as in (a) Planning (b) Organising (c) Co-ordinating (d) Budgeting (e) controlling business activities (f) 12

Decision making Thus management and improve the efficiency increase production and increase profitability by using accounting information in an appropriate manner. 3. Employees :Employees always feel that proprietor makes huge profit while there remunerations are limited, this doubt is removed by accounting information. On the basis of profit and loss account of the current year, they can know current years profit and can compare it with the profit of the previous year, In case the profitability is higher they can make a demand for bonus, increase in remuneration and retirement schemes etc. Employees are also eager to know about the continuance of the organisation in future for unlimited period because it will result in the continuance of their service therefore on the basis of balance sheet they can ascertain their job security and stability. External Users:1. Investors :Investor is a person who invests in company or business and in other words we can say investor is a person who have invested money in the business. It is only after knowing the profitability of business and sound financial position that potential investors takes decisions about making investment and present investors (shareholders) to continue investment in an enterprises. Accounting information is of great use to them in this connection specially in making judgment for their returns on investment.

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2. Creditors :They are the most important persons in the business or company. Creditors are those persons who have provided money/ capital to the business or company or credit and who have to receive back their money along with the interest from the owner of the company or business. The accounting information is very much helpful to the creditors in order to determine that the concern to whom they have given money will be able to pay their principle and interest (if any) as and when due. 3. Government :The accounting information are also used by the government in making pricing policy, trade policy and tax assessment. On the basis of accounting information government makes their policy. The accounting information is used by the government for the following purposes :Fixation of tax rates and introduction of new taxes To assess whether the unit is going to become sick To compute national income To prepare national accounts To know Industrial growth of the country. 4. Consumers :The Consumers are those person who uses or purchases the goods and services of a business house or a concern. Consumers are interested in the prices of the goods and services rendered by an enterprise. His price decision is based on cost of production plus estimated margin of profit, hence consumers are interested in accounting information with which an idea of price structure can be made.

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5. Foreigners :Foreigners are the nationals of other country, these days the entire world has become one market due to rapid growth of means of transport and communications. Some foreign market players are eager to know, the profitability and financial position of certain enterprises engaged in certain industries. On the basis of this information they make an opinion about import , export and also about merger and business takeovers. 6. Research Scholars :The students doing research in various universities industries, and in government departments are research scholars. Researches are being made in various universities industries and in government department. Accounting information of various enterprises is of great use to research scholars. 7. Other Persons :Many other persons are also interested in accounting information for instance (i) Entrepreneur :An entrepreneur preview is eager to know the profitability and financial positions of those enterprises which are already in an industry. It is only after knowing their position he will wake up his mind whether to start similar enterprises or not.

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(ii) Taxation Authorities :Taxation authorities needs an accounting information for determining various tax liabilities i.e. income tax, sales tax etc. (iii) Competitors :The person who want to compete with a particular enterprise, want to know its position on the basis of its accounting record. (iv) Trade Associates :These associations compare the performance of their member units and then, if need be, demand concessions or exemptions from the government in taxation and other spheres. (v) Stock Exchange :For approaching the profitability the stock exchange or stock market have also need of accounting information On behalf of accounting information the speculators make their strategy for the share or debenture of a company. They require accounting information in connection with listing of securities and other spheres connected with various dealings in stock exchanges. Thus we can say that the accounting information is very much helpful to the internal users such as owners management, employees on the other hand it is also helpful to the external users, such as investors, creditors, Government, Consumers, foreigners, research scholars, entrepreneur, tax authorities, competitors, trade associates, stock exchanges etc. in decision making, financial position of a company or business etc. Accounting is different from book keeping. Book keeping is an activity concerned with the recording of financial data relating to business operation in a significant and orderly mannia. It covers procedural aspects of 16

accounting work and embraces record keeping function. Obviously book keeping procedures are governed by the end product, the financial statements. In India the term financial statements means profit and loss account and Balance Sheet including schedules and notes forming part of accounts. A book keepers may be responsible for keeping all the records of a business or only of a minor segments, such as position of the customer's accounting in a departmental store. A substantial portion of the book keepers work is of a clerical nature and is increasingly being accomplished through the use of mechanical and electronic devices. Accounting is based on a careful and efficient book keeping system. The essential idea behind maintaining book keeping records is to show correct position regarding each head of income and expenditure . A business may purchase goods on credit as well as in cash, when the goods are brought on credit a record must be kept of the person to whom money is owned. The proprietor of the business may like to know from time to time what amount is due on credit purchase and to whom. If proper record is not maintained it is impossible to get details of the transactions in regard to the express At the end of the accounting period, the proprietor wants to know how much profit has been earned or loss has been incurred during the course of the period a lot of information is needed which can be gathered from a proper record of the transactions thus in book keeping the proper maintenance of books of account is indispensable for any business. Some people assume book keeping and accounting to be synonymous terms but in fact they are different from each other. Accounting is a broad subject. It calls for a greater understanding of records, book keeping is the recording phase while the accounting is concerned with the summarizing phase of an 17

accounting system. Book keeping provide necessary data for accounting and accounting starts where book keeping ends. Book keeping is a process concerned with the recording of transactions, whereas accounting is a process concerned with summarising of the recorded transactions. Book keeping constitutes as a base for accounting where as accounting is concerned as the language of business. In book keeping financial statements do not form part of there process where in accounting financial statements are prepared on basis of book keeping records, managerial decisions cannot be taken on the basis of book keeping records but such decisions can be taken on the basis of accounting records Book keeping do not consist of any branch or field but accounting consist of various sub-fields such as financial accounting, management accounting, cost accounting, human resources accounting, social responsibility accounting etc. The financial position of the business cannot be ascertained through book keeping records but on the other hand the financial position of the business is ascertained on the basis of the accounting records thus book keeping is different from accounting and it is a part of accounting. Therefore, Accounting is a broader concept and includes book keeping. The need of accounting was recognised when book keeping was done. OBJECTIVES OF ACCOUNTING :The objectives of accounting are discussed as below :-

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1. Ascertainment of Financial Position :The financial position depicts the progress or downfall of a concern Businessmen is not only interested in knowing the results of the business in terms of profit or loss for a particular period but is also anxious to know that what he owes (liability to the outsiders and what he owes (assets) on a certain date. To know this the accountant prepares a financial statement popularly known as Balance Sheet. The Balance Sheet is a statement of assets and liabilities of the business at a particular point of time and help in ascertaining the financial health of the business thus accounting is done in order to known the financial position of a business. 2. Ascertainment of results of recorded transactions :Under Accounting in a business the accountant prepare profit and loss account to know the results of business operations for a particulars period of time. If revenues exceed expenses then it is said that business is running profitably but if expenses exceeds revenue then it can be said that business is running under loss. The profit and loss account helps the management and different stakeholders in taking rational decisions. For example if business is not investigated by the management for taking remedial steps. 3. Systematic recording of transactions :If we talk about the basic objective of accounting it is clear that accounting is done to record the various transaction of a business of a concern systematically, objective of accounting is to systematically record the financial aspects of business transactions. 19 proved to be remunerative or profitable the cause of such a state of affairs can be

These recorded transaction are later on classified and summarized logically for the preparation of financial statement and for their analysis and interpretation thus foremost important objective of accounting is to record the transaction in the book of accounts systematically. 4. Provide Information to users for decision-making :Other decision-making Accounting is the language of objective business of which accounting is that it provides information to users which is helpful in communicates, the financial results of an enterprises to various shareholders and other persons by means of financial statements, as those persons after getting threw the records and financial statement can think about investing in the business and those who have invested can take decision for moving ahead. Accounting aims to meet the information needs of the decisions makers and also helps them in rational decision making. Information by the records and financial statements is not only provided to the customers but also to the management 5. Determination of Assets and Liabilities :Preparation of the financial statement means that a firm prepares its profit and loss account and the balance sheet. Balance sheet states the financial position of a business or firm during a certain period of time, it consists of the assets and liabilities. Accounting is generally done so as to know about the assets and liabilities of a firm or business it is very much important as liabilities are the dues and debt which are payable as soon as possible by the business thus, by accountancy a manager and accountant can easily determine the assets and liabilities.

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6. Knowledge of the Solvency Position :When accounting is done the concerned accountant by the relevant data prepares the balance sheet which depicts the financial position of the business. Management not only reveals what is owned and owed by the enterprise but also it gives the information regarding concerns ability to meet its liabilities in the short run (Liquidity position) and also in long run (Solvency position) as and when they fall due. Thus by accounting it is helpful to know the solvency position of the business or firm thereby we can say that accounting needs is required in large extent. 7. Knowledge of Stock and Cash :Knowledge of accounting is very much helpful for the determination of position of stock and cash stock consist of raw materials stock and finished goods stock, by proper accounting, position of stock can be determined and if already stock persist further purchases of stock can be avoided. Similarly in case of cash by preparing the balance sheet position of cash can be ascertained and if cash is sufficient further borrowing of cash can be postponed. 8. Knowledge of errors and frauds of the employees :One of the most important objective of the accounting is that by the help of preparation of accounts, the chief accountant can easily trace the fraud if any, done by the employees as it will reflect the transactions on the other hand. It will be beneficial for the business if frauds done by the employees will be brought forward. Error is also a genuine mistake which can be done by any one thus preparation of

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accounts can give information to the users regarding the errors made so that in future careful watch can be made by the head on their subordinates. Thus the accounting is very much helpful in a large extent to its users. Accounting is further classified in various sub-fields such as the records relating to the financial character and which have been already occured are grouped in financial accounting in the same way accounting by which internal reporting is done to the managers is related to management accounting similarly the process of accounting for cost is the cost accounting thus accounting consists of various branches they are as follows. BRANCHES OF ACCOUNTINGS :1. Financial Accounting :It is that branch of accounting which covers the preparation and interpretation of financial statements and communication to the users of accounts. It is historical in nature as it records transaction which had already been occurred. The final step of financial accounting is the preparation of profit and loss account and the balance sheet. It primarily helps in determination of the net result for an accounting period and the financial positions as on a given date. Therefore an accounting which relates with the analysis and recording of transactions of financial nature their classification, preparation of financial statements and their analysis and interpretation is termed as financial accounting. Financial Statements are of two types :General Purpose Financial Statement :- These statements are prepared for the satisfaction of the need of proprietors, creditors, investors, employees etc.

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Special Purpose Financial Statement :- These statements are prepared to satisfy taxation authorities and other Govt. officers. 2. Cost Accounting :It is an approach to evaluate the overall cost that are associated with conducting business. Generally based on standard accounting practices, cost accounting is one of the tools that managers utilize to determine what type and how much expenses is involved with maintaining the current business model. Cost Accounting is the method of accounting in which all elements of cost incurred in carrying out an activity or accomplishing a purpose are collected classified and recorded. This data is then summarized and analyzed to arrive at a selling price or to determine where savings are possible. In contrast to financial accounting the cost accounting considers it as the economic factors of production. "The process of accounting for cost which begins with the recording of income and expenditure or the basis on which they are calculated and ends with the preparation of periodical statements and reports for ascertaining and controlling cost." 3. Management Accounting :Management accounting or managerial accounting is concerned with the provisions and use of accounting information to managers within organization to provide them with the basis to make informed business diffusions that will allow them to be better equipped in their management and control functions. According to the chartered Institute of Management Accountants (CIMA) Management accounting is 'the process of identification, measurement, accumulation, analysis, preparation interpretation and communication of 23

information used by management to plan, evaluate and control within entity and to assure appropriate use of and accountability for its resources. Management accounting also comprises the preparation of financial reports for non-management group such as shareholders, creditors, regulatory agency and tax authorities.' As per Institute of Cost and Management accountants, London. 'Management Accounting is the application of the professional Information in such a way as to assit the management in the formation of policies and in the planning and control of operations of the undertaking.'. 4. Social Responsibility Accounting :Social responsibility accounting deals with identifying measuring and communicating social activities carried out by the entity for the benefit of various segment of the society. The demand for social responsibility accounting items from increasing social awareness about the undesirable by products of economics activities social responsibility accounting is concerned with accounting for social costs incurred by the enterprise and social benefits created. Social responsibility accounting is an important sub field in accounting. 5. Human Resource Accounting :Another branch of accounting is the human resource accounting it is an attempt to identify, quantity, and report investments made in human resources of an organisation that are not presently accounted for under conventional accounting practice. Accounting which is exclusively related with human resources is called as human resource accounting costs and values of human resources are recorded in this accounting system. It is of immense use for a business enterprises. 24

Accounting is done by the process of accounting which comprises of various two types of Accounting system namely single entry system and double entry system all the two are discussed below :TYPES OF ACCOUNTING SYSTEM 1. Single Entry System :Under this system in case of some transactions only one aspect is recorded. While in case of some transactions both the aspects are recorded and some transactions are not recorded at all. Single entry book keeping system also known as single entry accounting system is a method of book keeping relying on one sided accounting to maintain financial information. Most businesses maintain a record of all transactions based on the double, entry book keeping system. However many small simple businesses maintain only a single entry system that records the bare essential. In some cases only records of cash accounts receivable accounts payable and taxes paid may be maintained. Records of assets inventory expenses revenues and other elements usually considered essential in an accounting system may not be kept except in memorandum form single entry system are usually inadequate except whose operations are essentially simple and the volume of activity is low. Single entry systems are used in the interests of simplicity. They are usually less expensive to maintain than double entry system because they do not require the services of a trained persons. The single entry despite of the above advantages faces the various drawbacks or disadvantages they are as follows .

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DISADVANTAGES OF SINGLE ENTRY SYSTEM :Data may not be available to management for effectively planning and controlling the business Lack of systematic and precise book keeping may lead to inefficient administration and reduced control over the affair of the business. Single entry record do not provide a check against clerical error as does a double entry system. This is one of the most serious defects of single entry system. In single entry system the records seldom make provision for recording all transactions. In addition many internal transactions such as adjusting entries are often not recorded. Because no accounts are provided for many of the item appearing in both the income statement and balance sheet, omission of important data is possible. In absence of detailed records of all assets , tax administration of those assets may occur. Theft and other losses are less likely to be detected. DOUBLE ENTRY SYSTEM :The double entry bookkeeping system was started in 13th century and refers to a set of rules to record financial information in a financial accounting system wherein every transaction or event impacts at least two different accounts. In modern accounting this is done using debits and credits within the accounting equation, the accounting equation serves as a kind of error detection system if at any point the sum of debits does not equals the corresponding sums of credits then an error has occurred. The double entry accounting helps an accountant in avoiding mistakes this is why the professional accountant use it. A double enter system 26

provides a good check and balance benefit by making it easier for a person to trace the source of any entry errors. It also provides more useful and complete information than the single entry "Checkbox" approach because each transaction contains both a source and destination, double entry provides valuable details that can be stored and viewed in reports form later. 'Every business transaction has a two fold effect and that is affect two accounts in opposite directions and if a complete record were made of each such transaction it would be necessary to debit one account and credit another account . It is this recording to two fold effect of every transactions that has given rise to the term double entry system.' - J.R. Batliboi Double entry may also be defined 'as a system of accounting in which out of the two aspects of a transaction one aspect is debited and the other aspect is credited according to certain prescribed rules'. Double entry system of accounting is based on two fold aspects i.e. debit and credit. Debit word has been derived from the latin word 'debitum' which means 'due for that', debit is a symbol of accounting which is used to make the rules of accounting clear and operative. Similarly the word credit has also been derived from a latin word 'Creder' which means 'due to that'. As per the above discussion it thus leads to conclude that under double entry system of book-keeping every business transactions has two fold effects on the business enterprise and the dual aspect of each transaction brings about changes in assets, liabilities and capital in such a way that the debit and credit is affected which leads to the satisfaction of the accounting equation is :Assets = Liabilities + Capital 27

Thus by the above definitions we can derive various features of double entry system Where a transaction is entered into, two aspects are affected. Both of these aspects are recorded. If one aspects is recorded and other is omitted then it is not justified thus the first principle of Double entry system is that both the aspects of a transaction are recorded hence it is treated as a characteristic of double entry. Both personal and impersonal aspects of a transactions are recorded in double entry system. It is possible that both the aspects of a transaction may be personal or both may be impersonal or one may be personal and other may be impersonal. In Double entry system one aspect is debited while other aspect is credited. It does not mean that any aspect may be debited and any aspect may be credited. There are certain rules for debiting and crediting various aspects of a transaction and credit and debits are made on the basis of these specified rules. Since one aspect of each transaction is debited and other aspect is credited therefore total of all debit is always equal to the total of all credits. This help in finding out arithmetical accuracy of accounting record. This is done by preparing the trial balance. Under the double entry system the accounting is done properly and passes threw various stages thus the various stages of double entry system are as follows. Stages of Double Entry System :1. First Stage :-

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At the first and the foremost stage the transaction occurs thus when a transaction takes place, it is recorded firstly in a primary book called Journals. In case where the business is a big one, subsidiary books of journal are kept thus, recording in journal or in its subsidiary book is the first stage of double entry system. It is also known as original record stage. 2. Second Stage :In the second stage records of journal or its subsidiary books are transferred in a classified form to another book which is called as the ledger. These classified groups are technically known as accounts. Posting in ledger and its maintenance is the second stage of double entry system. It is also known as classification stage. 3. Third Stage :As it was discussed earlier that under the double entry system the trial balance is prepared in order to check the balance of credit and debit side is equal. Thus under the third stage of double entry system of accounting the preparation of trial balance is done. Balance of each account in ledger is found out and i.e. transferred to a statement which is called trial balance. 4. Fourth Stage :After the preparation of trial balance when trial balance is made, from the trial balance, final accounts are prepared. Final accounts includes trading accounts, profit and loss account and the balance sheet. In case of manufacturing concern before trading account, manufacturing account is also prepared. Preparation of manufacturing account trading account, profit and loss account and balance sheet is the fourth stage of Double Entry system of Accounting. 29

5. Fifth stage : After preparation of final accounts, analysis and interpretation of these accounts are made in order to have true and fair idea about the earning capacity and financial position of the business. Thus it is easily to conclude that under the double entry system of accounting the accounting if done in a designed and systematic way which consist of the above five stages namely original record, classification, trial balance, final accounts and analysis and interpretation are included in accounting structure. The depiction of the Accounting structure is given as below

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As per the above structure we can see that when the transaction occurs firstly it is recorded in the journal after that the transactions are thus classified such as transaction related to purchase are recorded in purchase book, transaction related to sales are recorded in sales books, transaction related to bills receivable and payable are recorded in their concerned books if their is any return related to goods purchase or sales made it is recorded in purchase return book and sales return book respectively, transactions related to cash are recorded in cash book. There after trial balance is prepared and with the help of trial balance final accounts are prepared which consist of manufacturing account, trading account, profit and loss account and at last the final statement that is called as the balance sheet with the help of these accounts the analysis and interpretation can be easily made. There are certain misconceptions regarding financial statements. A common man presumes that an income statement shows the correct income of loss of the enterprises and that a balance sheet depicts a perfectly true and fair picture of financial standing of that enterprise. It must be recognized that accounting as a language has its own limitation. The figures of profit and loss generated by the accounting process are subject to various constraints within which the accounting works. The assumptions and conventions on which the accounting is based, becomes the limitations or disadvantages of accounting. The financial statements are never free from subjectivity factor as there are largely the outcome of personal judgment of the accountant with regard to the adoption of the accounting policies. The following can be summed at the demerits or limitations of accounting as certain instances. LIMITATIONS OF ACCOUNTING :-

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1. The transactions which cannot be expressed in terms of money can not be recorded in accounting, the factors which may be relevant in assessing the worth of the enterprise don't find place in the accounts as they cannot be measured in terms of money. The Balance Sheet cannot reflect the value of certain factors like loyalty and skill of the personnel which may be the most valuable asset of an enterprise these days Hence, accounting is limited only upto monetary transactions. 2. As the balance sheet shows the position of the business on the day it is prepared and not on the future date as the users of the accounting are interested in knowing the position of the business in the near future and also in the long run. 3. One of the serious drawbacks of accounting is that the accounting ignores the factor like change in inflation, deflation etc. fair market value of assets is taken into consideration but still there remains some subjectivity. 4. In accounting the financial statements only considers those assets which can be expressed in money. Human resources although the very imported assets of the enterprises are not shown in the balance sheet. There is no general accepted formula for the valuation of human resources to money terms. 5. Different accounting policies for the treatment of same item adds to the probability of the manipulators, through various laws an accounting standards, efforts are made to reduce these options to minimum but certainly could not be reduced to one. 6. Accounting policies are framed by the accountant according to his own individual judgment for example provision of doubtful debts, 32

method of depreciation adopted, recording certain expenditure as revenue expenditure or capital expenditure, selection of method of valuation of stock in hand, period for writing off intangible assets and so on, hence it is subjective matter which prevails in accounting objective factor is ignored. 7. Legal and lawful restrictions prevail everywhere in accounting also the legal restriction prevail such as In case of companies various provisions of the companies Act 1956 are to be complied with and hence certain limitation are imposed by law on accounting system. To conclude we can say that the language of accounting has certain practical limitations and therefore, the financial statement should be interpreted carefully keeping in mind all the various factors influencing the true picture. COOPERATIVE - SOCIETIES Co-operative is a business organisation owned and operated by a group of individual for their mutual benefit Cooperation dates back as far as human being have been organizing for mutual benefit. Tribes were organised as cooperative structure allocating jobs and resources among each other, only trading with the external communities. The post- industrial Europe is home to the first co-operative from on industrial context. In 1961 the Fenwick Weavers Society was formed in Fenwick, East Ayshire, Scotland to sell discounted Oatmeal to local workers. Its services expanded to include assistance with savings and loan emigration and education. In 1810 welsh social reformer Robert Owen from Newtown in midwales and his partners purchased New Lanark mill from owen's father in law. David Dale and proceeded to introduce better labour standards 33

including discounted retail shops where profit were passed on to his employees. Owen left New Lanark to pursue other forms of cooperative organisation and develop cooperative ideas through writing and lecture Cooperative Communication were set up in Glasgow, Indiana and Hampshire although ultimately unsuccessful. In 1828 William King set up a newspaper. The cooperator to promote Owen's thinking having already set up a cooperative store in Brighton. The Rochdale Society of Equitable Pioneers founded in 1844 is usually considered the first successful cooperative enterprise used as model for modern co-ops following Rochdale Principles. A group of 28 Weavers and other artisans in Rochdale (England) set up the society to open their own store selling food items they could not otherwise afford. Within ten years there were over 1000 cooperative societies in England (United Kingdom), other society events such as the founding of a friendly society by the Tolpuddle Martyre in 1832 were Ray occassions in the creations of organised Labour and Consumes movement. Co-operative is an "old and ordinary" term. It has been a basic principle of human life since the very dawn of civilization But cooperation as an economic concept is the distinct feature of our times Cooperative Movement was the outcome of economic and social imbalances caused by industrial revolution Industrial revolution gave rise to big classes (Rich class) to exploit the weaker section of the society with a view of earning excessive profits. This exploitation took the form of long hours of work, lower wages, higher prices and bad service conditions. Economics hardship suffered by worker and other economically weaker sections of the

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community compelled them to think of an organised action for mutual help in order to make their condition better. This lead to world wide movement of organising cooperatives in various fields eg:- cooperative credit societies in Germany, Consumer cooperatives in England. The objectives of cooperative movement was to bring the needy persons together for pursuing, common economic interests by way of cooperative trading "self help through mutual aid" became the guiding principle of cooperation "Each for all and all for each" was the slogan of cooperators. Cooperatives sought to give a moral and human touch to commercial activities. Cooperation as a form of commercial organisation has been defind in various ways. Basically it suggests an idea of forming an association of individuals seeking to improve their economics lot through collective efforts. Such an association registered by legal authority under cooperative societies Act, comes to be called as "Cooperative Society". It is defined by various scholars as "A Co-operative Society is a union of individual who generally join voluntarily established on the basis of democracy, freedom and universality for the purpose of joint performance of economic acts of common interests to improve the material and moral position of its members using the force of honest cash and carry services and mutual help, which may be backed by government support, the not surplus being applied partly for general good and efficiency and partly shared in proportion to the paid up capital, which is allowed only a moderate rate of interest." - Mahesh Chand

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"It is an association of the week who gather together for a common economic need and try to lift themselves from weakness into strength through business organisation" - Talmaki "The theory of cooperation implies that an isolated and powerless man can by association with other and by moral development and mutual support obtain in his own degree the material advantage available to the wealthy and powerful persons" - The Maclagon Committee on Cooperation "An autonomous association of persons united voluntarily to meet their common economic social and cultural needs and aspiration through a jointly owned and democratically controlled enterprise." - International Cooperative Alliance Statement Thus a cooperative undertaking is a voluntary association in which membership is open for all and consist of a democratic setup and equality to vote, which means one members one vote' limited return on capital and consist of equal distributive profits. Thus the above definition of cooperative undertaking presents the following features of a cooperative society. 1. Voluntary Association :Cooperative organisation is basically a voluntary association of individuals seeking to improve their economic conditions through joint efforts. Individuals having common interest can join a cooperative society as its members of their own accord. They are also free to leave the organisation after giving due notice. There is no compulsion- either to become a member or to continue as a member. 2. Open Membership :36

In a cooperative society there is open membership is membership i.e. open to all irrespective of their caste, creed, religion, political affiliations and beliefs. Their membership list is not closed. New members are always welcome to a cooperative society. Membership fee or the value of the share in the capital of a cooperative society is kept low to enable persons with low income to become the members. 3. Democratic setup & Equality to vote :Equality in the essence of cooperative undertaking. Each member is entitled to a single vote regardless of his contribution to the capital of the society ONE MEMBER, ONE VOTE (not one share one vote) is the principle of democracy applied to a cooperative societies. Administration of a cooperative society is entrusted to a board of directors elected democratically by its members. Thus cooperative undertakings is truely democratic organisation. 4. Limited Return on capital :Capital is not given on under preference under cooperative system. Capital is rewarded in the form of a limited rate of interest. It is not the only basis for distribution of the profits of cooperative society among its member, the economic interests of all the members are the main consideration. Since interest- hinting or capital appreciation is not the main motto of co-operators the rate of interest payable on capital contributed by its members is normally restricted to 5% or 6% under the cooperative societies Act.

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5. Equal Distribution of Profits :Profits earned by a cooperative society are distributed equally amongst its members according to the extent of the business transacted with it by the respective members remaining profit are distributed on the basis of the dealing of the individual member with the society before transferring the specified portion of the profits to a Statutory Reserve fund on which fair rate of interest is paid to the member. Thus a Cooperative Society distributes the share of profit earned by its member equally. CO-OPERATIVES IN INDIA The cooperative movements in India is more than 70- years old. Towards the close of the 19th century rural indebtness became a serious problem for all the provinces in India. The Government of Madras(Chennai) deputed Mr. F. Nicholson an ICS official to study the organisation of cooperative rural banks in Germany which were most successful in emancipating the German villages for providing credit cooperatives were in his view the only remedy for the problem of rural indebtness. The famine comission of 1901 also made a similar suggestion, when afterwards the governments of India first took an important step. In 1904, by passing the cooperative societies Act. This act marked the beginning of cooperative movement in India. THE CO-OPERATIVE SOCIETY ACT 1904 provided a legal basis for the formulation of cooperative societies and cooperative credit societies in villages and in Urban areas for granting loans to there respective members assured of government support cooperative credit societies began to develop. By 1906-07, their came into being 843 cooperatives and their numbers increased to 8177 with 403318 members by the end of 1911-12. 38

In order to widen the scope of the cooperative movement a new law was enacted in 1912. Under the cooperative societies Act 1912, provision were made for the establishment of non-credit societies like sale- societies housing societies etc also. It also provided for organisation of coordinating institutions like Cooperative Unions , Cooperative Central Bank and Provincial Cooperative Banks to supervise and finance the cooperative societies. The act gave further filled up the cooperative movement. But the growth of cooperative was uneven, hence the government appointed in 1914 a committee called Maclagan committee to review the progress of the investment. Its recommendations could not put into effect due to the first world war . Under the Monfort reforms of 1914 (committee reforms) cooperation became provincial subject. Many provinces passed their own act to stimulate and regulate cooperatives in their respective areas. The number of societies stood at 57000 in 1925 But the great depression of 1929-33 dealt a sever blow to the movement. Many cooperatives were in precarious financial position due to excessive outstanding dues of their members. After the formulation of popular ministries in provinces in 1937 attempts were initiated to reorganise and revitalise the cooperative movement. Thus by 1939-40 the number of cooperative reached the figure of 137000 with a membership of 60.8 lakhs . A salient feature of the cooperative movement during this period was the development of multipurpose cooperatives. Since 1937 the Reserve Bank of India has been strongly advocating the idea of organising such societies. A Multipurpose society is a single society which is formed to cover a variety of needs and services. It grants credit to members supplies better seeds 39

fertilizers and implements, markets their produce helps them in irrigating their lands and supplies other needs at fair prices. Thus the functions of better farming, better credit, better business and better living are all preformed by one society. These societies have made remarkable progress in the states of Madras (Chennai) , Maharashtra, Gujarat, Mysore and Uttar Pradesh. The Second World War stimulated further growth of cooperatives. Rising agriculture prices strengthened the position of agricultural cooperatives. Cooperatives made impressive appearance in other fields like consumers cooperatives, marketing cooperatives, housing cooperatives etc. The consumes cooperative, societies showed largest expansion. The total number of all the societies reached the record figure of 139136 by 1946-47 By 1947-48 the movement covered nearly 17% of the population as against 6% in 1938-39. There are various types of cooperative undertaking in India such as cooperative credit societies, consumes cooperative stores, industrial cooperatives, marketing cooperatives, cooperative farming societies and cooperative housing societies the cooperatives are classified as below :-

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1. CO-OPERATIVE CREDIT SOCIETY :Co-operative credit societies are established to provide financial help in the form of direct loans to their members. They may be formed by agriculturists artisans, industrial workers, salary earners etc. On the basis of collective interests for the purpose of mutual assistance. Credit which is needed for productive and non-productive purpose is not easily available to economically backward classes of people from commercial banks and other financial institutions. Hence they have to be at the mercy of private moneylenders who charge heavy rate of interest and exploit in various ways the helplessness of the needy people Hence the only alternative left for the poor and middle class people is to form their own associations on cooperative basis in order to grant credit to those of them who badly need. Another equally important purpose of credit cooperatives is to encourage the habit of thrift among their members. Credit cooperative may be established in rural areas by agriculturist or artisans or they may also be formed by salary earners and industrial workers in urban areas . Credit cooperatives in the rural areas are called as Primary societies or Rural credit societies. Those organised in urban areas are known as Urban Banks, Salary earner Societies or Workers Societies. 2. CONSUMER CO-OPERATIVE STORES :Another types of the cooperative are the consumer cooperative stores, as the name states consumers, these stores are engaged in providing goods and articles to the members. Consumes cooperative stores seeks to ensure steady supply of consumer goods and services of standard quality to their members at fair 41

prices. It purchases the articles of consumption on wholesale basis and resells them on retail basis to the members at reasonable prices, thus these consumer cooperative stores play an important role in providing goods and services to their members. 3. INDUSTRIAL CO-OPERATIVES :Another type of cooperatives are the industrial cooperatives which are organised to carry on certain type of industrial activities where basically small scale and cottage industries are developed by the co-operatives with an object of industrial cooperation, to stimulate higher production to improve quality of products etc. Industrial cooperative provide raw material, implements, tools, technique, guidance to the members so as to enable them to produce specified goods. Thus the success of the industrial cooperative depends on loyalty and sincerity of members, support of the government cooperation of credit and financial institutions, provisions of marketing and transport facilities etc. 4. MARKETING CO-OPERATIVES :Another cooperatives are the marketing cooperatives which are formed to enable the members to secure fair price for their merchandise . These marketing cooperative seeks to ensure a ready, steady, and favourable market for the produce turned out by the member. It is impossible for the small farmers to sell their produce in time and at remunerative prices. Marketing cooperative undertake centralized sale of the produce contributed by their members. Produce of different members are pooled together and sold by the societies at reasonable prices thereafter sale proceeds are divided among the members according to their respective share 42

in the pool. Thus the marketing cooperative eliminates a number of middlemen and reduce the costs of marketing. 5. CO-OPERATIVE FARMING SOCIEITIES :Cooperative farming societies are voluntary association of farmers who pool their land and jointly conduct these agricultural operations. Their aim is scientific organisation of agriculture on large scale so as to increase production and improve the economic position of cultivators. Scientific agriculture involves mechanization of farming, provision of improved seeds, fertilizers, improved method of cultivation, irrigation, soil conservation etc. It is impossible to make there improvement by individual farmers on their own accord. The unit of cultivation has to be enlarged so as to derive economics of large scale operations in the field of agriculture and to introduce new methods and techniques thus, farmers can form cooperative farming federation by pooling their land to conduct all or some of the farming activities jointly. There are mainly four forms of cooperative farming societies. (a) Co-operative Better Farming Society :- The first form of cooperative farming societies is the cooperative better farming society in which each members has his own land they cultivate their lands independently but follow the plan of cultivation designed by the society. In this type of farming society there is common purchase of seeds, implements etc, cleaning of land, use of tractors etc are made on collective basis. All this is done with a view to bettering the tone and result of farming. (b) Co-operative tenant Farming Society :- In this collective ownership of land but individual operatorship. Here the society owns the land and converts it into different holdings. Each of holding is then leased out to an 43

individual tenant for cultivation where tenant should be the member of the society. They have to cultivate their holding according to the plan chalked out by the society. Each tenant pays a fixed rent and is free to dispose his holding in any way, he likes. The profit of the society is distributed among the members according to the rent paid by them. (c) Cooperative joint Farming Society :- In this type of society land is pooled but the ownership right of each member is retained and recognised. There is joint cultivation by the member of land pooled, members work on the land as per the directives of the society and get there daily wages. The produce raised is collectively sold by the society profits is distributed among the members accordingly to the wage earned by them. A limited rate of dividend is also paid to the members on the value of their respective lands members have the right to withdraw their land from the pool. The main mark of this type of society is the individual ownership but joint cultivation. (d) Cooperative Collective Farming Society :- Under this form of cooperative farming there is collective ownership as well as collective operatorship. The society owns the land jointly and members have to work on the land jointly in return of daily wages. Individual rights of ownerships are not recognized, not is independent cultivation permitted. Profits of the society are distributed among the members on the basis of wages respectively earned by them.

6. CO-OPERATIVE HOUSING SOCIETIES :44

Cooperative housing societies are organised to provide residential accommodation to their members either on ownership basis or at fair rents with reasonable amenities like water supply, lighting, sanitary services etc. Poor and middle class people find housing a major problem, they cannot afford to invest large sums of money in construction of in purchases of houses. It is also difficult to get houses on rental bases Hence, they can organise themselves into housing cooperatives in order to remove these handicaps. They provide their members with dwelling houses on rent or help them with loans for constructing or purchasing houses. There are various forms of cooperative housing societies. (a) Ordinary housing Societies :These type of housing cooperative advance loans to their members for the purpose of building construction Members may choose there own site for construction. Loans are repayable within a specified period for example 15 to 20 years. These societies may also acquire land and convert it into plots and allots them to the members for construction of houses. (b) House Building Societies :- These societies undertake to construct the houses on behalf of their members. Instead of granting loan in cash and leaving the members to build the houses these societies themselves build the houses as agents of the members. This lead to economies in cost of construction. (c) House Construction Societies :These type of housing societies acquire land and construct houses and rent them to members . Members remain as tenants of the society. They can however become owners after paying the cost of their respective houses which is recovered in installments

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spread over normally 20 years. Their working is based on hire purchase system. Housing cooperatives provide good relief of the problems of housing shortage in towns and cities, members are able to get houses at relatively Lesser cost they have the facility to become owners by paying the cost in easy installments. Cooperative housing estates and township endeavours to provide modern amenities to the residents such as roads, street lights, parks, post office, library, school etc. They also facilitate community living. Thus, the cooperative societies are helpful to the general society as it provides the various advantages to the society as a whole. ADVANTAGES OF CO-OPERATIVE SOCIETIES 1. As a cooperative undertaking is a voluntary association which can flourish both under capitalist and socialist economic system. It ensures both personal liberty and social justice. 2. Management of cooperative undertaking is democratic based on equal voting rights. The principle of "one-man one vote" prevents domination by a small group of shareholders over its affairs. 3. Its profits are distributed on the basis of individual transactions of the members (with the society). This principle recognizes the value of economic justice and prevents undue concentration of wealth in a few hands. 4. Since the share list is always open to new member, the shares of cooperative society are not sold at rates highs than their par values, hence it is free from evils of speculation in share values. 5. The value of shares of a cooperative society is usually low. Therefore the message of cooperation among persons of modest means can be popularised.

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6. Cooperative are non-competitve organisation. They are not interested in capturing the markets and ousling weaker firms. They aim at mutual prosperity of all and not of some at the cost of other cooperation therefore it is described by M. Darling as "religion applied to business" its motto is "each for all and all for each". 7. Cooperative provide scope for self government. Worker consumers farmer and middle class people- all receive training in their societies in different fields of business " cooperatives store" 8. Since members of a cooperative society come from a compact area or from a particular social or economic group there is larger identity of interest among them. This helps in healthier unified and efficient management of its activities. Despite of the above merits a cooperative societies faces following draw backs they are as follow :DISADVANTAGES OF CO-OPERATIVE SOCIETY :1. Cooperative generally do not face any stiff competition. Market for their goods and services is more or less ready and assured. Hence there is possibility of slackening of efforts. 2. Cooperatives may not be able to mobilise adequate capital for large scale and risky business because the rate of interest on capital is limited . This may not be in tune with the risk involved. 3. The managing committee may not be competent and hence they are likely to ignore the standard principles of business. 4. Qualified and experienced officers may not be available for service in cooperative, because of relatively low scale of remuneration. They may be

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attracted by handsome salaries offered by capitalist enterprises. Thus management of cooperative is likely to be less efficient. 5. The success of cooperatives depends directly on the loyalty of their members. This loyalty may not be always assured and cannot be enforced. Hence, cooperative are likely to collapse if their members turn to other enterprises for their economic needs. 6. Cooperative cannot cover the entire economic system. It is doubtful whether the principles of cooperation can be applied to organise all type of economic activities. For example they are not suitable to organise big industrial enterprises. 7. Cooperatives are legally incorporated enterprise, formulation, operation and liquidation of cooperative societies are all subject to too many legal formalities, administered by the all powerful Registrar of cooperatives. These time consuming formalities are likely to dampen the spirit of potential cooperators. 8. Recurring losses due to inefficiency, ignorance of principles of cooperation, misuse of funds for sectional interests and potential propaganda are other defects of cooperatives which limit their effectiveness.

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PROFILE OF COOPERATIVE SOCIETIES IN UTTAR PRADESH


The Cooperative societies in Uttar Pradesh play a vital role in the social economic development of the state. As the state is basically an agricultural based state thus Cooperative societies provides financial assistance and social upliftment of the people belonging to the weaker section. It provides a vital role in the development of rural Uttar Pradesh by providing seeds, fertilizer loans, etc to the rural farmers. The Cooperative provide agricultural production. The Cooperative societies provide various facilities by Cooperative banks which provide short term loan for the agricultural production and long term loans for purchase of the agricultural equipments & tools such as tractors, harvester, thresher, Rotavator etc. It also provides loan for setting up tube wells on lands, pump sets etc. The Cooperative rural banks provides loans and encourage rural business schemes such as Dairy, Poultry farming, Fishing business etc. It also provide loans for development and encouraging of production of Mangoes, Grapes, Beetle, Rose, and also various other medicinal plants. Apart from that they also promotes habits of small savings among the rural people and encourage them for serving and deposits those for long period Apart from the agricultural rural Cooperative banks another Cooperative organisation The U.P. Cooperative Federation provides variety of facilities to the rural agricultural farmers such as seeds at low cost and it also deals in purchase and sale of agricultural produce these facilities are performed in 49 an important role in the development of the state and the country in the field of

the districts by District Cooperative Association. The other Cooperative undertaking, in Uttar Pradesh is the U.P. Consumer Cooperative Federation which aims at ensuring steady supply of consumers good and services of standard quality to the members at fair prices. The storage of goods at the warehouse is made by he U.P. Processing & Cold Storage Federation which consist of such societies engaged in the task of storage processing of goods for future use. Thereafter is the Uttar Pradesh labour & work Cooperative Federation which consist of labour societies which aims at providing the jobs to the rural people at fair prices. It guarantees its members for the employment. Another society is the Uttar Pradesh Cooperative Union which aims at providing education, training and development of the people, Apart from these another society is the Uttar Pradesh Potato Development and Marketing Cooperative Federation which is established for the purpose of storage of potatoes and their purchase and sale, the work is done by Cooperative societies in the districts. Another society is the Uttar Pradesh Cooperative Jute Federation which aims at enhancement and production of Jute by providing seeds, fertilizers for its production, At last is Uttar Pradesh Pulse Cooperative Federation which was established for the production and development of pulses in Uttar Pradesh. IMPORTANCE PRADESH :As the state of Uttar Pradesh is basically an agricultural based state thus cooperative societies is very much important for the development of the state. As majority of the population of the state rest in the rural Uttar Pradesh thus the cooperative societies play an important role as follows 50 OF COOPERATIVE SOCIETIES IN UTTAR

1. It provides the financial assistance to the members by way of cooperative banking facilities where the members are provided for agricultural short term and long term loan at a nominal rate of interest. 2. The cooperative societies are also important as they uplift the weaker sections of the society by providing them finance

assistance and social upliftment. 3. The cooperative societies in Uttar Pradesh also play an important role in the agricultural production at it provides financial (generally short and long term loan) to the agricultural farmers with which they are able to purchase the tools equipments necessary for the production. 4. The cooperative societies are also important as they provide goods services to the members at cheap rates. 5. It is also important as these cooperative are engaged in generating saving habits among the members by providing huge amount of interest on the pools of the members. 6. The cooperative societies also have an important role in the marketing of goods & services. The goods manufactured or produced by the member are marketed by these societies and thus 51

marketing facility are also provided by such cooperative marketing societies. 7. The cooperative societies are important so as to protect

agricultural farmers from the middlemen and to get them the correct price for their agricultural produce. 8. The cooperative aim at training, education and jobs to the members so as to make them self dependent.

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1. Uttar Pradesh Cooperative Federation (P.C.F.) :The Uttar Pradesh Cooperative Federation popularly known as P.C.F. was established on 11th June 1943 in the capital of Lucknow with a main objective so as to protect the agriculturist from the exploitation of the intermediaries and to get them the actual cost of their produce so as to make them financially strong on the basic of cooperation. In order to achieve the above objective the cooperative societies have its district office where it provides seeds, fertilizers etc to the agricultural farmers. The Uttar Pradesh Cooperative Federation at present have 18 zonal offices and 71 district branches and 10 marketing offices. At a start having just one office in the year 1943 with 30 employees and a capital of 13600 at present the federation have around 2537 officers employees with 71.98 crore capital. The Uttar Pradesh Cooperative Federation have done a business of Rs. 1717.95 crore in the year 2008-09 and Rs. 2671.79 crore in the year 2009-10. For the year 2010-11 an aim of Rs. 3416.78 crores the P.C.F. have done a business of around 1112.35 crore during the month of September 2010. 54

Management of P.C.F. :The Supreme control and management of the federation vests in the hands of general body, the organisation structure consists of which is made by the elected representative of the organisation. The general body elects 14 members of the committee of management and 2 members are appointed by the state government. The members of the managing committee elects the president and the vice president.

MAIN FUNCTIONS AND OBJECTIVES :Uttar Pradesh Cooperative Federation limited performs the following functions and its objectives are stated as below 1. Distribution of Fertilizers, Seeds etc. : Uttar Pradesh Cooperative Federation , (PCF) main function is the distribution of fertilizers and seeds among the agriculturist. With an objectives of distribution of fertilizer it, has distributed the fertilizer of Rs. 17.88 crore till September 2011 The distribution of seeds by the federation is also made. In the year 2010-11 till September 2011 the organisation has distributed around 0.30 lac Quintal seeds in the state.

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2. Marketing of Agricultural Produce :The other function and objective of the federation is the marketing of agricultural produce it aims at selling the agricultural produce by marketing branches and Cooperative purchases - sale societies, in the year 2010-11 it has done the marketing of Rs. 0.01 crore in the state ( till September 2010) 3. Supply to Coal in State :The other objective and function of the federation is to supply the Coal within the state by the Coal India Limited only, for which offices of the federation in Dhanbad & Kolkatta are situated. During the year 2010-11 upto september 2011 coal of 8660 matric Ton of Rs. 2.60 crore have been supplied.

4. Purchase of Food Grain under price Support Scheme :The Uttar Pradesh Cooperative Federation purchases the food grain such as rice & wheat and such food grain purchased are supplied as per the state government rules in Central Pool to Indian Food Corporation and State storages etc.

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5. Supply of Levy Sugar in State :The U.P. Cooperative Federation is also evolved in the supply of Levy Sugar in 18 divisions of the State from where it is supplied to the various parts of the State. 6. Constructive of Warehouses :The U.P. Cooperative Federation performs an important function of construction of warehouses. For the storage of agriculture produce the federation have warehouse at cities, Tehsils and block level the total storage capacity of which is 10.27 Lac Metric tons. 7. Agricultural Service Centers :The U.P. Cooperative Federation ( P.C.F.) provides services to the farmers of Fertiliser, specified seeds, chemical, Agricultural tools, cattle feed by way of 820 Agricultural service centres

2. Uttar Pradesh Cooperative Bank Ltd. :One of the most important financial Cooperative Organisation is the Uttar Pradesh Cooperative Bank Ltd. 57

The Uttar Pradesh Cooperative Bank was established

of 20

November 1944 and is recognized as main Cooperative organization of District Cooperative Bank. Like this around 67 years have passed since this bank is working. The U.P. Cooperative Bank is listed in II list of Reserve Bank of India act 1934 thus it is a schedule bank and is regulated as a Cooperative organisation under U.P. Cooperative

Society Act 1965 and U.P. Cooperative Society Rules 1968 and Banking regulaion Act 1949. The Uttar Pradesh Cooperative Bank Ltd. have around 59 district cooperative banks, 11 chief Cooperative organisation and state government as its members. The bank has around 38 pay office, 17 divisional offices and a total of 87 offices in the state along with that 2 cadre authority one divisional rural banks and one Cooperative Training Organisation is also regulated by the Uttar Pradesh Cooperative Bank. It has a large number of branches spread all over the state for providing Cooperative financial assistance to the members. As finance is the backbone of business thus the Uttar Pradesh Cooperative Bank Ltd. cater to the needs of people thereby providing them financial assistance.

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Objective:1. It acts of a central point for the Cooperative societies of the state. 2. To receive money in form of saving, current, and fixed accounts and increase funds. 3. To provide loans to the ordinary members without any security or mortgage of fixed or fluctuating assets. 4. To do / make collection of wealth in form of cheque, drafts etc on behalf of members & non members. 5. To provide cash, credit, overdraft or loan to the members as per the rules stated by the divisional managers. 6. As per the section 45 of the Act to do agreement with the state for the establishment and management of "chief State Participation Fund". 7. To open offices, Branches, payment offices and divisional branches in official areas of the bank. 8. To act as banking agent of bank for the state government public oganisation, other banks of the state and Reserve Bank of India. 9. To manage and organise the work of the society which has been suspended by the managing committee under the rules of the Act.

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10.To advice the banks and societies in relation with the working and principles of banking along with that inspection and care-taking of those societies. 11.To organise various Cooperative Conferences from time to time and to take effective actions on the various decisions taken in such conferences. 12.Purchase and sale of securities and to act as an agent for the purchase sale of securities of Indian Government, state government and Indian Trust Act 1882 sec. (20) part A, B & C along with that transfer of such securities and cash which increases cash for books. 13.To use funds, wealth and cash of banks in a proper way. The Uttar Pradesh Cooperative Bank Ltd. are owned by their customer and follow Cooperative principle of one person one vote. There are around 12000 banks which include public, private, Cooperative and rural Banks, almost 1700 belong to Cooperative sectors. 3. Uttar Pradesh Cooperative Rural Development Banks Ltd. :The Uttar Pradesh Cooperative Rural Development Bank Ltd. was established in the year 1959 under the Cooperative Act. It is a Chief Cooperative organisation of the State. At the start the bank 60

provides long term loans for enhancing agricultural output with its 30 branches. In the year 1965 the, Uttar Pradesh Government handed over the Taquavi loan distribution work to the bank in 17 districts and after considering quality of distributed loan in the year 1968 at started loan distribution in all district relating to small irrigation scheme etc. At present the bank have around 323 branches which are engaged in providing banking finance for the agricultural produce implement, development of rural areas etc. In last three years the share capital of Uttar Pradesh Sahkari Gram Vikas Bank has zoomed over 85% from Rs. 254 crore to 471 crore. The private capital has also increased from Rs. 422 crore to Rs. 457 with total number of bank members jumping to 133000 from 120000. Functions of U.P. Cooperative Rural Development Bank :1. Accepting Deposits :Catering to the needs of rural farmers the Cooperative Rural development bank accepts deposit in three ways i.e. Saving Bank Account, Current Account and Fixed Deposit Account and at present the bank gives 9.75% interest on deposits ( 2011).

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2. Advancing Loans :The Uttar Pradesh Cooperative Bank Rural Development Bank advances the loans to the public in form of (a) Minor Irrigation Scheme :Under this scheme the banks provide loans for establishing wells, boring, tube wells, purchasing pump sets sprinkles etc arranging generators engaged in fields for irrigation. (b) Advancing Loans for Agricultural Implements :The Uttar Pradesh Cooperative Rural Development Bank advances the loans for the purchase of agricultural implement at a reasonable rate of interest such as Tractors, Power Thresher, Repairs for Tractor, combined Harvesters etc. (c) Non Agricultural Advance :The banks also provide loans for non agricultural work such as loan for flour mills, mini rice mills, ready made garments, carpets making, shops for fertilizers & seeds, rural nursing home, agricultural business centers.

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(d) Structural Loans :The banks also provide loans for the organisation which are engaged in agricultural and rural development work thus it provides oganisation loans. (e) Rural Housing :The Uttar Pradesh Cooperative Rural Development Bank provides the loans for the rural houses the loans provided by the bank includes the loans given for the construction of new house and also the loans for the repairs & renewals of the old house. (f) Miscellaneous Schemes :The bank also provides loans for miscellaneous activities and business conducted in rural areas 1. Business related to Dairy 2. Business of Poultry Farming i.e. henc Promotion of Poultry farming. 3. Business of Fishing in rural areas 4. Business of such as Goats, Sheep, Camels Pigs, Rabbit Buffalo. Thus the Uttar Pradesh Cooperative Rural Development Bank Ltd. is an important banking organisation which imparts loans for the development of rural areas. Nowadays the U.P. 63

Cooperative Rural Development Bank provides loans for transport such as loan per purchase of Trucks, Mini Buses, Jeeps Motor boat and two wheelers and for purchase of lands.

4. Uttar Pradesh Consumer Cooperative Federation Ltd. :The Uttar Pradesh Consumer Cooperative Federation is the chief organisation of the state's consumers societies which was established on 4.12.1965. The working of Uttar Pradesh Consumer Cooperative Federation is the whole of the state of Uttar Pradesh The federation along with the National Cooperative Development Organisation have established warehouses of a capacity of 58000 metric tons in 44 (forty four) districts of the state. The warehouse are largely used by the federation and the vacant ones are given on rent to various organisations. The state government has declared the Uttar Pradesh Consumer Cooperative Federation as the nodal agency for computerization work from the year 2005-06. At divisional level the Federation have 15 divisional offices, at district level it has 16 deport offices. Apart from that it has 100 fertilizes sale centers in the state at Lucknow, Jaunpur, Sitapur Auraiya, Bakshi Ka Talab, in Nighasan a gas agency etc. 64

Main Functions :1. The retail selling of Urea, NPK, DAP. Zink sulphate, Bio fertilizer manufactured by the IPL and IFFCO. 2. The purchase of food grain ( wheat and rice) under the price support scheme. 3. Computerization work in all the cooperative organisation is done by the Uttar Pradesh Consumer Cooperative Federation. 4. To provide writing material, stationery, printing material computer, furniture and other office use material in all government and semigovernment offices. OBJECTIVES OF UTTAR PRADESH CONSUMER

COOPERATIVE FEDERATION :1. To provide Consumers goods among member societies :The first objective of U.P. Consumer Cooperative Federation is to provide the good quality of consumer goods at a reasonable rates to the members societies so that these goods are available at the fair rates to the general consumers.

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2. Advice to members Societies regarding Business :The other objectives of the U.P. Consumer Cooperative Federation is to advice the members societies regarding the business it acts as an advisor to the societies and helps them in handling the operation regarding the business matters. 3. Federation of Consumer scheme :The Uttar Pradesh Consumer Cooperative Federation Ltd. is established so as to promote the consumer schemes in the various parts of the districts and aware at the people about the consumers schemes in the state. 4. Supply of Fertilizers, Seeds, Medicines to Farmers :The U.P. Consumer Cooperative Federation aims at supplying the fertilizers, seeds, medicines etc to the framers of the state, it also provides the fertilizers to the rural and agricultural farmers spread in the various parts of Uttar Pradesh. 5. Sale of Agricultural Equipments and Tools :The U.P. Consumer Cooperative Federation Ltd. aims at selling the agricultural tools 66

equipment such as tractors, machines, equipment tools, plough, threshers etc to the agricultural farmers which is helpful in the agricultural work, these agricultural implement are very important. 6. Food grain for the Cattles :The other objectives of the U.P. consumer Cooperative Federation is to provide food grain for the cattle they aims at providing fodders, oilcake, husk etc which are food grains of the cattle etc. 5. Uttar Pradesh Processing and Cold Storage Federation ( PACSFED) :Uttar Pradesh Processing and Cold Storage Federation was popularly known as (PACSFED) and was a chief organisation which was registered on 25th November 1974. This organisation was established for the development of cold storage in Uttar Pradesh in which goods can be stored for a longer period of time. At the start its main objective was 1. To establish and develop the cold storage in Uttar Pradesh. 2. To establish the agricultural service centers in the rural parts of U.P. 3. Developed of the processing units in the state of Uttar Pradesh. 67

4. Arrangement of plant and machinery for the processing units. 5. Annual servicing and repairs of the machinery implements. 6. Technical assistance in the working and direction of the units etc. The work of the cold storage and processing units slowly reduced due to which the financial problem of (PACSFED) became worst, thus the Government of Uttar Pradesh converted all the capital of

( PACSFED) on 28.6. 2009 to the Uttar Pradesh Processing and Construction Cooperative Federation (PACCFED) . Uttar Pradesh Processing and Construction Cooperative

Federation ( PACCFED) :The Uttar Pradesh Processing and Construction Cooperative Federation ( PACCFED) was registered on 9.6.2009 and all of the assets /capital of Uttar Pradesh Processing and Cold Storage Federation was transferred to PACCFED on 28.6.2009 and thus organization is recognized as a development construction authority by the government on 8th July 2009. This organisation aims at Better quality, reasonable time etc. In state at U.P. Processing and Construction Cooperative Federation the laboratories are established which are there3 at sites. The various function of PACCFED are 68

1. Construction of Cold Storage and Warehouse :At start this organization aim at the construction of cold storage and warehouses in the state for the storage of perishable items and the agricultural produce so as to supply it to the various people in the state. 2. Construction of Government Department, Nigams etc. :The PACCFED is a government agency which is involved in construction work, it acts as a construction agency of the government so as to ensure business growth. It is involved in the construction of government offices district headquarter nigam etc thereby meeting quality construction for the state. 3. Ensures Better quality construction work:Uttar Pradesh processing and construction Cooperative Federation is an organisation which ensures better quality of construction works for which it have its laboratories where quality of work done is checked in this way the organisation aims at better quality construction work. 4. To Train Field Officer in Construction Work :The another function of the Uttar Pradesh Processing 69 and Construction Cooperative

Federation is that as this agency is involved in the construction work of the government thus it aims at large training of the official who are on field so that they can check the quality of construction work, for this at divisional level training programmed are arranged. 5. Act as Construction Agency for Government :The agency in U.P. (PACCFED) act as a construction agency for the government. In order to ensure business growth and continual improvement of the processes through clients satisfaction by continuously meeting quality construction and delivery specification at competitive prices with close cooperation amongst and involvement of all employees and business associates. This it (PACCFED) acts as a construction agency for government and now-days construction of medical family welfare, basic education, transport, minorities development, home guard department etc. building are done by the federation. 6. U.P. Labor and Work Cooperative Federation Ltd. :For the balanced economic development of the country and the state the labor and farmers play an important role. The Laborer group is a majority group of our society. Thus in the development, upliftment of the labor class 70

the economic development lies. All cooperative banks, rural banks and cooperative societies working in the state are involved in the development of laborers and this liability for the labors is fulfilled by the Uttar Pradesh Labor and Work Cooperative Federation. The Uttar Pradesh Labor and Work Cooperative Federation was established in the year 1972 in Uttar Pradesh as U.P. Labor contract cooperative federalism. This name was changed along with the objectives in the year 1980 as U.P. Labor and Work Cooperative Federation. This organisation has been declared as a construction agency by the government of U.P. Objectives of the organization :1. To provide assistance and help in completing the contracts by associated labor contract societies, also business for the members labor societies. 2. To provide tools, equipments, machines etc. for fulfilling the objectives of the labor contract society for the construction work. 3. To train the members and employees of labors contract societies and also to increase their efficiency and effectiveness.

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4. To receive share capital from the members labor contract societies and other cooperative societies to fulfill its objectives and handle its business. 5. To provide the drawing, designs of the construction work as per the requirements of the labor contract societies. 6. All such work which are helpful in achieving the above objectives. 7. To provide equipment for the construction work repairs of the government and cooperative societies other organization, apart from that providing labor for the site. Chief Construction Work Completed in Recent Years :1. Cold Storage :The organisation have constructed lot of warehouses in the state chief among them are in Maharajganj, Mirzapur, Gazipur, Raibareili, Hardoi, Lakhimpur Kheri, Ghaziabad, Azamgarh,

Akbarpur (Ambedkar Nagar), Faizabad, Meerut, Hathrus, Aligarh, Etah, Mainpuri etc. 2. Pulse Mills :The pulses mills are constructed in Siswan (Maharajganj), Siddharthnagar, Bahraich etc. 3. Warehouses :72

Construction of big and small warehouses in Amethi (Jagdishpur), Gauriganj (Sultanpur), Lucknow, Banda etc. 4. The organization has also constructed the various district cooperative banks in which Ghaziabad, Firozabad, Pilibhit etc are among the chief construction. 5. The organization has also constructed cooperative training center in Meerut, Moradabad, Varanasi etc. 6. Building construction in Sampoornanand Sanskrit University in Varanasi. 7. Construction of primary schools building at state level. 8. Construction of N.R.H.M. centers building in four divisions under family development department. 9. Construction of I.T.I. building 10.Construction of state Polytechnic hostel buildings. 11.Construction of various building under Minorities development departments. 12. Constructs of residential building and warehouses of Agricultural department.

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7. Uttar Pradesh Cooperative Union :Another most important organization of the cooperative is the Uttar Pradesh Cooperative Union (CPU) which is a non-business state organization. The Uttar Pradesh cooperative Union was established in the year 1928 with the objective of providing cooperative education and training to the members, along with that it aims at promotion of cooperative programmes in the state. For providing cooperative education the Uttar Pradesh Cooperative Union has established units in the various districts of the state and has opened 6 cooperative management training institutes in Meerut, Varanasi, Habra (Itawah), Mahoba, Ayodhya (Faizabad), Bilari etc. Objectives :1. To provide cooperative to the members officials etc 2. To provide training and education to the members of the societies. 3. To provide promotion of the cooperative programs at a large scale in the states. 4. To provide for the promotion of cooperative programs, it aims at establishing press where annual, monthly magazines are published which promotes cooperative in the state. 74

In order to fulfill the above objectives the Uttar Pradesh Cooperative Union performs the following function in the various parts of the state including various divisions and district of the state. In order to fulfill the above objectives the Uttar Pradesh Cooperative Union performs the following functions. 1. Cooperative Education Programs :At a start the U.P. Cooperative Union provides all the members, officials of cooperative societies education by way of seminars and meeting. Like this education of principles of cooperation is provided to the members of the societies. Under this scheme in the year 2009-10 up to October 2009 a total of 33951 member, officials are provided educations. 2. Cooperative Training Schemes :Apart from the cooperative education program the Uttar Pradesh Cooperative Union performs the work of training and development of the members of the societies by way of cooperative training schemes. The organisation runs 60 training centers in the state where diploma courses and short term training session are arranged. In the year 2009-10 and total of 1050 persons were trained. 75

3. Promotion of Cooperative Schemes :The Uttar Pradesh Cooperative Union aims at promotion of cooperative schemes among the members of cooperative society. It aims at encouragement of the saving and promotion schemes among the societies spread in the various parts of the state. 4. Cooperative Promotion and Publicity :The Uttar Pradesh cooperative Union for the promotion and publicity of cooperation work, it publishes a weekly news magazines and also monthly news magazines regularly in the state. At present there are around 4135 life time members of such magazines in the state. Along with that under the same scheme time to time cooperative conferences, seminars etc. are arranged for promotion of cooperative movement in the state of Uttar Pradesh. 5. Cooperative Press :As discussed above for the effective functioning and promotion and publicity of the cooperative programs weekly and monthly magazines are published. For the publishing of monthly and 76

weekly magazines the organization has its own press which is called as "cooperative Press" where all the magazines related to the state cooperatives are published . This press was established in the year 1969. In this press all the stationary required by the organisation of cooperative are printed. In the year 2009-10 the press has made a business of Rs.58.52 lacs. 6. Cooperative Insurance scheme :The U.P. Cooperative Union performs an important functions as cooperative insurance scheme with an objective for providing increase in financial resources, security of the assets and cash of cooperatives organisation, and for the security of life of the members of the societies. In any accident the Uttar Pradesh cooperative Union provides facility of insurance to the members at a minimum and general rate by general business insurance companies the (P.C.U.) has got the insurance of 22.49 lacs in the financial year 2009-10. 8. Uttar Pradesh Potato Development and Marketing Cooperative Federation :Uttar Pradesh Potato Development and Marketing Cooperative Federation 77

is one of the chief and prominent cooperative organisation in the state with its main office in Fatehgarh, Farukhabad U.P. The Uttar Pradesh Potato Development and Marketing Cooperative Federation Limited was established on 15th November 1983 under the Uttar Pradesh Cooperative Act 1965 whose registration number is one . Area of Operation :The Uttar Pradesh Potato Development and Marketing Cooperative Federation Limited is a chief cooperative organisation whose area of operation is entire Uttar Pradesh Being Farukhabad chief producers of potato in Uttar Pradesh the main head office of Uttar Pradesh Potato Development and Marketing Cooperative Limited is situated in the district of Farukhabad.

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Membership of the Organisation :The membership of the organisation comprises of the following :S.No. 1 2 3 4 5 6 7 Organisation District Cooperative Banks Ltd. District Cooperative Numbers 7 9 29 4 2 5 1 57

Federation Ltd. Purchase Sale Cooperative Societies Chief Societies Primary Societies running cold Storage Others State Government Total

Share Capital of the Organisation :The Share Capital of the organisation consists of the following. 1. State Government 2. Member Organisations Total 75.00 Lacs 11.22 lacs 86.22 lacs

Objectives of the Organisation :-

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The Uttar Pradesh Potato Development and Marketing Cooperative Federation Limited have the following objectives 1. To help the farmers who are engaged in the production of the potato- to provide them with the basic requirements such as loans etc. and financial assistance. 2. To helps the farmers in providing proper seeds, fertilizers and other tools potato. 3. To provide necessary aid for the export of potato to the various states of the country. 4. Another objective of the organisation is the proper arrangement for the marketing of the produced potato of the farmers in the markets. Present Business Scheme/Policy of the Federation :Presently the federation have planned the following works in the state, these works are stated as below :1. The federation have planned for the sale of fertilizers, seeds, agricultural implements to the farmers of the state. and agricultural implements for the production of

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2. The scheme of federation is to supply food for the animals to the farmers. 3. Purchase of the wheat under the price support scheme the proposal of which has been presented to the government. 4. The office of the federation is in the market premises so as to take the advantage of that to earn money by giving the land on rent and earning capital. 5. To provide first class potato seeds to farmers by way of seed sales centre. 9. Uttar Pradesh Potato Cooperative Jute Federation :For providing the jute to the farmers of the state on a correct price for purchase and sale, storing etc., the organisation was established on 15.12.1966 and is among the chief cooperatives in Uttar Pradesh but slowly and gradually the jute production has been decreased. The organisation has given rebirth to the production of jute by providing loans and fertilizers and implements to the farmers. The work of warehousing, transportation, rack handling and retail selling is done by outlets of IFFCO since 1994-95 and the organisation is in profits from such business. Business of the organisation :81

The federation is engaged in the supply of fertilizers by the various co-operative societies in the districts such as Sitapur, Lakhimpur Kheri, Tehsil Sadar, Biswan Tehsil of Sitapur, Puranpur Tehsil of district Pilibhit etc. The retail selling outlets of fertilizers in the district of Sitapur and Lakhimpur have been opened. The work of seeds sale and wheat is being done in Sitapur. The position of profit and loss in last three years is as follows. S.No. Particulars 2007-08 136.9 of 1 15.02 55.50 105.2 5 56.15 2008-09 65.47 18.74 59.98 128.7 7 117.0 2009-10 Upto31.3.2010 1 Sale of Fertilizers 2 Warehousing Fertilizers 3 Fertilizers Transportation 4 Fertilizer Rack handling 5 Purchase of Rice 6 Purchase of Wheat 7 Processing of 56.12 15.68 57.90 88.32 174.83

Wheat seeds 0 Advantages of the Jute Federation to Society :1. Sale of Fertilizers :-

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The Uttar Pradesh Cooperative Jute Federation Limited benefits the society by the establishing private fertilizer centers in the rural areas which provides the farmers with the 100% pure fertilizers at the government rates by which the farmers have maximum financial profits in production of jute there is production increases in jute which benefits the farmers and society also. 2. Storage of Fertilizers :Another important advantage of Uttar Pradesh Cooperative Jute Federation is storage of the fertilizers in the various districts so that in peak season the farmers should be provided with fertilizers on need apart from that employment is also provided by the federation. 3. Transportation of Fertilizers :The task of transportation of fertilizers in various tehsil of the districts is fulfilled by the various societies in the state by which the farmers gets fertilizers when they require it. 4. Production and Distribution of Wheat Seeds :The work of production of wheat seeds in the district of Sitapur is being carried on 83

in the present year and its distribution is being done by various cooperative societies, personal sales centers after providing discount as by the government to the farmers. It is noteworthy that the 40% produced seeds is soled to the scheduled caste and scheduled tribes of the state. 10. Uttar Pradesh Pulse Cooperative Federation limited:Uttar Pradesh Pulse Cooperative Federation limited is among the chief organisation of cooperatives in Uttar Pradesh and was established on 30.6.1987 . The objective of the organisation was to lay emphasis on the production of pulses by farmers in Uttar Pradesh and also the marketing of pulses in the state, with the objective of pulse production at a large scale the federation aims at providing fertilizers, pesticides and insecticides, seeds and other necessary goods along with the agricultural implements to the farmers. Presently the organisation is in liquidation. Objectives of Uttar Pradesh Pulse Cooperative Federation:1. Production of Pulses :The first objective of the federation is that it aims at encouraging the farmers for the production of pulses in the 84

state for which it provides the agricultural finance generally short term and long term for purchase of seeds, fertilizers etc. 2. Supply of Pulse Seeds :The other objectives of the federation is that the federation aims at supplying the pulse seeds, this objective is fulfilled by the various retail centers established for selling the seeds of pulses in the state. 3. Supply of Agricultural Implements, Fertilizers etc :The organisations main objective is supply of agricultural implements, fertilizers etc for development of pulses. The federation aims at supplying the fertilizers, medicines for the crops and also the agricultural implements for easy production of the pulse crops in the state. 4. Marketing of the Produced Crops :The other objective of the organisation is the marketing and sale of the pulses that is the produced crops. The marketing of the produced crops is done by the various outlets which are situated is the various districts of the state. 5. Accurate Price to the Farmers :85

The Federation also aims at providing correct and accurate price to the farmers who are engaged in the production of pulses in the various districts of the state the accurate price is been provided to the farmers by the purchase of pulses produced by the government etc. Thus, the Uttar Pradesh Pulse Cooperative Federation Limited is one of the chief organisation of cooperative but now it is under liquidation. Organisational Structure of the Department :The registrar is the head of the department, to assist him in his work there are 5 additional registrar. The work of registrar is divided into various departments. Each additional registrar have control over 4 to 5 sections . The organisational structure of the department is shown in the Chart

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For the help of the additional registrar for each and every scheme, there is Class I scheme officer. These scheme officer have been provided work of more than one scheme. Presently the cooperative departments working at the various levels in the state, the various levels are as follows :1. 2. 3. 4. 5. 6. 1. State Level :The office of the state is called as the head office . For the application of various schemes there are 5 additional registrar to assist the registrar there is also one Finance controller, one chief technical officer, one financial advisor, 9 deputy registrar , one education officer. Along with that there is 1 agriculture officer and a staff of Class II, Class III and IV Class employees. At the state level the scheme officer helps the registrar in providing technical 88 State Level Divisional Level District Level Tehsil Level Block Level Village/Panchayat Level

information and policy farming and conduct the work administration, direction etc. 2. Divisional Level :Presently there are 18 divisions In each division the joint registrar is the head and each division have 3 to 6 district. The work is in the hands of the divisional officer and the work is carried in the guidance of divisional officers. Under the cooperative societies act the powers of the registrar are given to these officers. These officer have full power to take decisions regarding registration etc. Appointment of assistant registrar is made to assist the joint registrar in the division. 3. District Level :There are presently 71 districts in the state. In each district there is one assistant registrar and in some districts there are additional assistant registrar to assist the assistant registrar. For other schemes related with staff cooperative agriculture in Lucknow, Rampur and Varanasi district there are divisional Assistant Registrar (Agriculture) and some class III and IV employees to assist him. All the cooperative schemes in the district are carried on under

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assistant registrar. The Assistant Registrar have the power of the Registrar for packs under the cooperative societies act. 4. Tehsil Level :For the effective working in the various 252 tehsils of the state of cooperative movement there are additional district cooperative officers and there is offices for them equipped with furniture and fixture etc. Under the tehsil level the Additional District Cooperative Officer is responsible and liable for all the cooperatives societies in the tehsil of the state of U.P. 5. Block Level :At the Block Development level for the proper application of the cooperative schemes at Block Level the organisation have cooperative Inspector Grade 2 and Assistant Development Officer of Cooperatives for the distribution of seeds, fertilizers and to look after the cooperative movement. These Cooperative Inspector Grade 2 and Assistant Development officer (Cooperative) look after the work of the cooperative societies in the Block and present their report to the various high level officers.

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6. Panchayat Level :At the panchayat level the organisational structure consist of a secretary. In each cooperative society at panchayat level in whose jurisdiction there are at least 10 Gram panchayats. The secretary is responsible for providing seeds, fertilizers and other agricultural related facilities to the farmers covered under the gram panchayat. The work of distribution of loan, recovery of loans is done by the secretary along with the help of Assistant Development Officer (cooperative) and cooperative observer. Thus, the organisational structure of the cooperative societies is large enough in Uttar Pradesh so as to provide cooperative assistance in the entire state of Uttar Pradesh.

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PRESENT ACCOUNTING SYSTEM IN COOPERATIVE SOCIETIES IN UTTAR PRADESH

Every Business transaction has a two fold effect and that it affects two accounts in opposite direction and if a complete record were made of each transaction, it would be necessary to debit one account and credit another account. It is this recording to two-fold effect of every transaction that has given rise to the term Double Entry System. J.R. Batliboi Accounting and book keeping are two different terms, Although in practical life, Book keeping and accounting are used interchangeably there are some differences between the two, because Book-Keeping and accounting are used and looks like similar though they are different. Book-Keeping is concerned with the recording of business transaction in a significant and orderly manner which is mechanical and repetitive in character. As such this work usually entrusted is junior employees of the accounts department who are known as book-keepers. Accounting in the other hand, as used in a broader sense of the term and is more analytical. The accounting includes the design of accounting system, preparation of accounting / financial statements and audits, development of forecast cost studies, income tax works, analysis and interpretation accounting in formation of internal as well as external end in users as an aid to making business decisions which in the other words require some skill, experience and imagination. The person who are engaged in these works are called as accountants that is why, it is 92

rightly said that when book keeping ends, accounting starts. Book-Keeping supplies the basic for accounting. System of Accounting :Basically there are two systems of accounting that may be followed for recording business transaction viz (A)Single Entry System (B)Double Entry System 1. SINGLE ENTRY SYSTEM :Under this system, a cash book is prepared which shows the receipts and payment of cash transaction and no other legal is maintained except a rough book for recording transaction relating to personal accounts. It is called as 'Pure Single Entry'. Under this method real accounts and nominal accounts are not recognized. In short, these transactions are only recorded in cash book without however, applying the principles of double entry. That is why it is said that the system which does no totally follow the principle of double entry system is called Single Entry System. According to R.N. Carter single entry cannot be termed as a system, as it is not based on any scientific system like Double Entry

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System. For this purpose , Single Entry System is now-days known as Preparation of accounts from incomplete records. Disadvantage of Single Entry System :1. Under the system of Single Entry verification of arithmetical accuracy of the books of accounts is not possible since the Trial Balance cannot be prepared. 2. It is also not possible to ascertain the correct amount of profit or loss of the firm i.e. results from operation, since nominal accounts are missing under this system. 3. As real account are not recognized therefore, the real financial position can not be known at the end of the accounting period. 4. There is the possibility of fraud, manipulation greater as compared to Double Entry System as the verification of arithmetical accuracy is not possible. 5. Any statistical information relating to the business or the comparison between the two firms or the interim accounts etc. which help the management to take decision or to formulate policy in future is not available in this system. 6. This system of Single Entry is not relied by the outsider such as (Income Tax Authorities, Bank etc.). 94

Practically this Single Entry System

do not exist anywhere, this

system is followed by those firms whose transactions are limited and at the same time, who mantain only the essential records. There is no hard & fast rule for maintaining records under this system is it depends or the circumstances and necessity of the firm. (B) DOUBLE ENTRY SYSTEM ( SYSTEM FOLLOWED IN CO-OPERATIVE SOCIETIES, U.P.) :This system was invented by Italian merchant named Luco Pacioii in 1944 A.D. In this system one party giving the benefit and the other receiving the benefit and every transaction, in this system in divided into two sides Debit and Credit. In short, one account is to be debited and another account is to be credited for every transaction in order to have a complete record of the same. Therefore every transaction affects two accounts in opposite direction. For example if goods ae sold to Mr A on credit, the same well affect goods/ sales account and A's account and entries will be made in opposite direction in these two accounts. This system is called Double Entry System, since keeps record for every transaction in two accounts, therefore the basic principle under this system is that for every debit there must be a corresponding credit a vice-versa. 95

Every business transaction has two fold aspects i.e. debit and credit. A system of accounting in which both the aspects of each transaction are recorded as per prescribed rules is called Double Entry System. It does not mean that every transaction is recorded two times but here one aspect is recorded at one place and another aspect is recorded at another place. For example Rs 500 are recorded from Mohan. This is a transaction. In this transaction cash is received and Mohan is payer of this cash. Thus it has two aspect (i) Receiving of Cash (ii) Payment by Mohan. Out of these one aspect is debited and other aspect is credited according to certain prescribed rules. On the basis of above explanation the Double Entry System may be defined as " a system of accounting in which out of the two aspects of a transaction one aspect is debited and other aspect is credited

according to certain prescribed rules. Thus, it leads to conclude that under Double Entry System of book keeping every business transaction has two fold effect on the business enterprise and the dual aspect of each transaction brings about change in assets, liabilities and capital in such a way that the debit & credit is affected in such a way which leads to the satisfaction of the accounting equation i.e. 96

Assets = Liabilities + Capital or Debit :The word debit has been derived from the latin word debitum which mean 'due for that'. In fact debit is a symbol of accounting which is used to make the rules of account clear & operative. Credit :The word credit has been also derived from a latin word "creders" which mean 'due to that'. It is also used as a symbol in accounting which is used to make the rule of account clear & operative. Characteristics of Double Entry System :The following are the features or the characteristics of Double Entry System. 1. Where a transaction is entered into, two aspects are affected. Both of these aspects are recorded. If one aspects is recorded and other is omitted then it is not justified. Thus, the first principle of Double Entry System is that both the aspects of a transaction are recorded hence, it is treated as a feature of double-entry. 2. Both personal and impersonal aspects of a transaction are recorded in Double Entry System. It is possible that both the aspects of a transaction may be personal or both may be impersonal or one may be personal and other may be impersonal. Assets Liabilities = Capital

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3. In Double Entry System one aspect is debited while other aspect is credited. It does not mean that any aspect may be debited and any may be credited. There are certain rules for debiting & crediting various aspects of a transaction and credit and debit are made on the basis of these specified rules. 4. Since one aspect of each transaction is debited and other aspect is credited therefore total of all debits is always equal to total of all credits. This helps in finding out arithmetical accuracy of accounting record This is done by preparing Trial Balance.

Advantages of Double Entry System :1. The double entry system of accounting is very much helpful in acquiring financial information about the business, for taking managerial decisions etc. 2. The double entry system of accounting is helpful in the comparison of the accounts of the various years. Also it helps in determination of goodwill. 3. The double entry system as it removes doubts about the amount to be received and paid thus all the persons who are directly or indirectly concerned with the business are benefitted. 98

4. In the double entry system as there is two fold aspect for every transaction thus there is less possibility of manipulation of accounts. 5. The system of double entry helps in the easy understanding of the records as well as it is easy in the auditing of the business accounts. 6. In the double entry system of accounting accurate profit/loss from accounting can be ascertained as nominal accounts are there. 7. As trial balance is prepared thus arithmetical accuracy of the books of accounts can be easily judged. 8. Comparison between two heads of accounts can be made which indicate the reasons for changing the net results of business between the two years. 9. It provides full information regarding properties or assets or losses or gains of the business. Rules of Debit and Credit :The transactions in the Journal are recorded on the basis of the rules of debit and credit. For this purpose business transaction have been classified into three categories (i) Transaction relating to persons (ii)Transaction relating to properties & assets 99

(iii)

Transaction relating to income & expenses

On this basis it becomes necessary for the business to keep an account of (i) (ii) (iii) Each person with whom it deals Each property or asset which the business owns Each item of income & expense

The account falling under the first heading are called Personal Accounts. The account falling under the second heading are termed as Real Accounts. The account falling under the third heading are called as Nominal accounts. The classification of accounts are explained above, can put in the form of the following chart ACCOUNTS

PERSONAL

REAL

NOMINAL

Individual, Firms , Companies, Bank, Statutory Authorities.

Assets- Such as Cash, Land, Patent, Building, Goodwill.

Expenses and losses, Incomes and gains.

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1. Personal Accounts: The personal accounts include the accounts of persons with whom the business has dealing, these accounts can be classified into three categories -

(a) Natural Personal Accounts :The term 'Natural Personal' means persons who are creation of God for example Ram, Abha, Sohan's Account etc. (b)Artificial Person Accounts :These accounts include the accounts of corporate bodies or institution which are recognized as persons in business dealings. For example accounts of a Limited Company, the account of Cooperative Society, the account of a Club, the account of Government, the account of Insurance Co. (c) Representative Personal Accounts :These are the accounts which represent a certain person or group of person. For example if the rent is due to the landlord an outstanding rent account will be opened in the books. Similarly for salaries due to the employees an outstanding salaries account will be opened. The outstanding rent account 101

represents the account of the landlord to whom the rent is to be paid, While the outstanding salaries account represent the accounts of the person to whom the salaries have to be paid. All such accounts are therefore termed as Representative Personal Accounts.' Thus the rule is :Debit : The Receiver Credit :- The Giver

For example if cash has been paid to Rajesh the account of Rajesh have to be debited. Similarly if cash has been received from Kumar, the account of Kumar have to be credited. 2. Real Accounts :The Real accounts are of two types such as tangible real accounts and intangible real accounts. (a) Tangible Real Accounts :Tangible Real Accounts are those which relate to such things which can be touched , felt, measured etc. Example of such account are cash account, building account furniture account, stock account etc. It should be noted that bank account is a personal 102

account since it represents the account of banking company an artificial person. (b)Intangible Real Accounts :The Intangible real accounts are such accounts in which such thing for which accounting is done can not be touched, of course they can be measured in terms of money for example patent account, goodwill account etc. Thus the rule is :-

Debit :- What Comes In Credit :- What Goes Out

For example if building has been purchased for cash the building account should be debited since it is coming into the business, While cash account should be credited since cash is going out of the

business. similarly when furniture is purchased for cash, furniture account should be debited while cash account should be credited.

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3. Nominal Accounts :Every business has to incur some expenses and if makes some income also. Some name is given to the head under which these expenses and incomes are recorded eg. when wages are paid, cash goes out but name for this head is wages account .If interest is received cash comes in but the head under which the cash is recorded is named as interest account, therefore the names of the heads of expenses and income are called as nominal accounts. These accounts are opened in the books to simply explain the nature of transaction. They do not really exist, for example in a business salary is paid to the manager, rent is paid to the landlord, commission is paid to the salesman, cash goes out on of the business and it is something real while rent, salary, commission as such do not exist. The account of these items are opened simply to explain how cash has been spent. In the absence of such information it may be difficult for the person concerned to explain how the cash at his disposal was utilized. Nominal accounts include accounts of all expenses, losses, income and gains, the example of such account are rent, rates, light, insurance, dividend loss by fire etc. 104

Thus the rule is :-

Debit :- All Expenses and Losses Credit :- All Gains and Incomes

Thus we can sum up all the rules of the various accounts as below -

RULES

PERSONAL ACCOUNT (Debit the receiver account, credit the payer's account)

NOMINAL ACCOUNT (Debit the account of expenses and losses, Credit the account of Income & gains.)

REAL ACCOUNT (Debit the account of what comes in, and Credit the account of what goes out.)

Stage of Double Entry System of Accounting :These are the following five stages of double entry system of accounting.

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1. First Stage :When the transaction takes place it is recorded in a primary book called journal. When the business is a big one, subsidiary book of journal are kept. Thus recording in journal or in its subsidiary book is the first stage of double entry system. It is also called as original record stage. 2. Second Stage :After the records are entered in the journal. Record of journal or its subsidiary books are transferred in a classified form to another book which is called ledger. These classified groups are technical known as account. Postage i.e. posting in ledger and its maintenance is the second stage of double entry system. It is also known as classification stage. 3. Third Stage :The balance of each account in ledger is found out and is transferred to a statement which is called as "Trial Balance". Thus, preparation of trial balance is the third stage of double entry system of accounting.

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4. Fourth Stage :From the trial balance, the final accounts are prepared. The final accounts includes the trading account, profit and loss account and the balance sheet. In the case of a manufacturing concern before trading accounts, the manufacturing account is also prepared the preparation of manufacturing accounts, trading account and the balance sheet is the fourth stage of double entry system of accounting. 5. Fifth Stage :After the preparation of the final accounts, analysis and interpretation of these accounts are made in order to have true and fair ideas about the earning capacity and financial position of the business. This is the fifth and the final stage in the double entry system of accounting. Thus in order to complete the accounting in the Double Entry System the above given stages are to be fulfilled for the proper analysis and interpretation. Therefore at the first stage as soon as the transaction takes place it is recorded in the Journal.

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JOURNAL The Journal records all daily transaction of a business in the order of which they occur. A journal may therefore be defined as a book containing a chronological record of transactions. It is the book in which the transaction are recorded first of all under the double entry system. Thus journal is the book of original record. A journal does not replace but precedes the ledger. The word journal has been desired from French word 'Jour' which means 'Diary' Journal is the book of original entry in which preliminary record of both aspects of a business transaction are recorded in order in which they arise i.e. in chronological order. Whenever a transaction takes place it is recorded directly in this book and both the aspects of the transaction are recorded systematically in the order in which transaction take place. A journal is called as a book of original record or a book of prime entry because all the transaction and events are recorded first in this book. The process of recording transaction and events in a journal is called as journalizing. The format of journal is given as below.

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(FORMAT OF JOURNAL) Date Particulars L.F. Amount Dr. Rs. Amount Cr. Rs.

The approach of recording transaction in journal is by adopting the following procedure 1. Date :In the date column, first the year is mentioned for which the accounts are to be prepared and then month and date of transaction are recorded in chronological order. 2. Particulars :In this column first the account which has to be debited in the transaction is recorded from the left corner of the particular column and in the extreme right corner in the same line the abbreviated word 'Dr.' is recorded. In the next line, the account which is to be credited is written leaving for space from left by prefixing word 'To' before the name of the account. The next process involves writing of explanation of the transaction recorded in the next line in brackets. This explanation is termed as narration accounting language 109

After writing

the narration a straight line is drawn in particular

column which indicates end of the journal entry. 3. L.F. ( Ledger Folio) :This column is not used which journalizing the transaction but is used when the process of "posting" the transaction in ledger is done. It records the page number of the ledger book where the relevant accounts are opened. 4. Amount Debit :This column records the amount to be debited against the account which has been debited 5. Amount Credit :This column records the amount to be credited against the account which has been credited.

6. Carried forward etc. :In the journal if all the transaction of journal require more than one page for their record, total of amount column of journal is made on each page at the end of the page and the words carried forward are recorded before this total amount. On the next page of the first line when this amount of total is recorded and word 110

'Brought Forward' or 'Brought Down' are recorded before the total amount. Types of General Entry :A journal entry can be of two types (a) (b) (a) Simple Journal Entry Compound Journal Entry Simple General Entry :The Simple Journal Entry is that when only two accounts are affected or involved in a transaction, the entry passed to record such transaction is called Simple Journal Entry.

Jan 1

Cash A/c............................................Dr To Mahesh (Being cash received from Mahesh) (b) Compound Journal Entry :-

300 300

Those entries are called compound entries in which the same account is debited in more than one transaction or the same amount is credited in more than one transaction and the transaction are of the same date of if the number of account is to be 111

debited or credited is more than two, entry passed for recording the transaction is called compound journal entry following description makes it clear.

Jan 1

Goods A/c ........................................Dr To Cash A/c To Sohan A/c (Being goods worth Rs.2000 purchased for cash and worth Rs.3000 purchased from Sohan) Classification of Journal

5000 2000 3000

The Journal is divided into (a) General Journal and (b) Special Journal JOURNAL

General

Special

Cash Book

Purchase Day Book

Sales Day Book

Return Return Bills Receivable Inward Book Outward Book Book

Bills Payable Book

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Special Journal :The Special Journal is sub-divided into Cash Book, Purchase Day Book, Sales Day Book, Return Inward Book, Return Outward Book, Bills Receivable Book & Bills payable Book. 1. Cash Book :The book which keeps the records of all the cash transaction is cash receipt, cash payment is called as a cash book. It is like a ledger and it divided into two parts, Debit and Credit. All receipt are recorded on the Debit side whereas all payment are

recorded on the credit side. 2. Purchase Day Book :The purchase day book contain the transaction relating to credit purchase of goods i.e. it keeps records about the detail of credit purchase of goods which have been brought for the purpose of resale. It is also known as Bought Day Book, Purchase Journal. 3. Sales Day Book :This Book contains the transaction relating to credit. Sale of goods i.e. it keeps record about the details of only credit sale of goods. It is also called as Sold Day Book, Sales Journal etc. The 113

sales day book is written from the copies of outward invoices. The debit entries are posted individually where as credit to sales account is given at the end of day, a week, a fortnight, a month etc. 4. Return Inward Book :The Return Inward book contain the transaction relating to good that are returned by the customers for a number of reasons eg. if goods are not according to sample, or not up to the mark etc. It is also known as sales return book. 5. Return Outward Book :This book records the transaction relating to goods that are returned to the supplier for a number of reasons that is this book records returned by us to one creditor. eg. goods broken in transit, not according to sample etc. It is also called a Purchase Return Book.

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6. Bills Receivable Book :This book contains the transaction relating to bills which are received from the customers. Thus the Bills

Receivable book deals in the bills receivable by a business. 7. Bills Payable Book :This book contains the transaction relating to bills which are paid by a customer. This book maintains the transaction relating to bills which are accepted by a traders. LEDGER As we have discussed above that as soon as a transaction take place it is recorded in the Journal and then the record of journal is transferred in another book which is called as the Ledger. The method of writing from journal to ledger is called as 'Posting'. The Ledger contains the various accounts and accounts are traditionally kept in a book called Ledger. This is the main book of account and contain all accounts needed for preparing the financial statement. Therefore it is called as 'Book of Principal Entry.' The term 'Posting' means transferring the Debit and Credit items from the Journal to their respective accounts in the Ledger. It should be

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noted that the exact names of accounts used in the Journal should be carried to the Ledger. Rules Regarding Posting :The following rules and procedure should be adopted for posting the debit and credit aspect of the transaction recorded in journal. (a) Posting of Account Debited in Journal :The following steps are to be followed First :- To open the respective account in Ledger with the help of index page on a particular page no. Second :- Record the date of transaction in the date column in the debit side of account. Third :- Write the name of the account which has been credited in the respective entry in the debit side of the account as "To" ( name of account credited) Fourth :- Record page number of the journal where the entry existed in folio column. Fifth :- Entry of the amount as appearing in the account debited in Journal in the account column. 116

(b)Posting of Account Credited in a Journal :The following steps are to be followed First :- To open the respective account in a Ledger with the help of index page on particular page no. Second :- To record the date of transaction in the date column in the credit side of amount. Third :- With the name of the account which has been debited in the respective entry in the credit side of the account as "By" ( name of the account debited). Fourth :- To record the page number of Journal where the entry exist in folio columns. Fifth :- The enter the amount as appearing in the account credited in journal in the amount column. Balancing the Accounts :After the posting has been completed, account are balanced . For balancing the difference in the total of the two sides is ascertained . If the debit side is bigger or greater than the credit side the difference is known as "debit balance" and likewise if the credit side is greater or bigger then the debit side, the difference is 117

"Credit balance". The difference is placed on the shorter side saying, " To ( or By) balance carried down ( or c/d) and then the two sides become equal. The total is then written on both the sides opposite each other and the account is ruled off. Then the balance is written on its side ( Debit balance on the debit side and credit balance on the credit side) as To ( or By) Balance brought down ( or b/d). This starts the account for the next period. (SPECIMEN OF LEDGER)
Date Particulars J.F. Amount. Date Particular J.F. Amount

Sub Division of Ledger :Where the transaction are extensive and numerous it becomes necessary to sub-divide ledges into separate books, although it varies from firm to firm depending on the nature and size of the business unit the subdivision of ledger is 1. Debtor Ledger :The debtor ledger is that ledger which contains the accounts of those customers or debtors to whom goods were sold on

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credit that is the credit sales. It is also called as sold ledger or sales ledger etc. 2. Creditor Ledger :It is that ledger which contains account of those suppliers or creditor from whom goods were purchased on credit that is for credit purchase. It is also called as Brought Ledger or Purchase Ledger etc. 3. General/Nominal ledger :The general / nominal ledger is that ledger. It contains the ledger relating to Real and Nominal Account as well as the total of Debtors and Creditors ledger account.

TRIAL BALANCE The third process in the accounts cycle as discussed earlier in book refers to preparation of trial balance. Trial balance is a statement in which debit and credit balance of all the accounts of ledger including cash and bank balance ( taken from cash book) are shown to test the arithmetical accuracy of the books of accounts. As every debit has to corresponding credit hence the total of debit balance of trial balance is always equal to total of its credit balances. 119

The books of accounts are closed at the end of the year, but they may be closed at any times according to the requirements of the businessman. Whenever books are closed, balances are find out in various accounts and then these balances are recorded in a statement which has four column namely particulars, ledger folio, debit balances & credit balances this statement is called as Trial Balance. Trial Balance is a statement or list of debit balances and credit balances of the accounts of Ledger or of debit totals and credit totals of the accounts of ledger of both balance and total of accounts of ledger. It prepared at a certain interval of period which is mostly one financial year. Thus it is to be remembered that Trial balance is not a part of an account but a statement which is prepared to verify the arithmetical accuracy of ledger accounts.

Objectives of Preparing a Trial Balance :A Trial Balance is a generally prepared for the following objectives 1. The Financial Statement ( Final Account) namely Trading

Accounts, Profit and Loss account and Balance sheet is prepared on the basis of Trial Balance. 120

2.

The Trial Balance is prepared in order to check the arithmetical

accuracy of books of accounts. 3. By preparation of trial balance the balance of any accounts of

ledger can be easily and conveniently known by it. 4. If Trial Balance does not tally it means either their are some

errors in recording, posting or balancing of accounts or their is manipulation. Thus steps are taken to locate and rectify errors to tally the Trial Balance before preparing financial statements. 5. The other objectives of preparation of trial balance is that to

summaries entire ledger at one pace thus the position of a particular account can be judged simply by looking at the Trial Balance. 6. Through Trial Balance, books of accounts are tested and it is

only after this test that final accounts are prepared. Method of Preparation of Trial Balance :At first, close each of the individual accounts, one by one, by taking up their respective differences which will either show a debit balance ( i.e. if debit total is greater than the credit total) or a credit balance ( i.e. if credit total is greater than the debit total) The debit balances of the account are to be written in debit column whereas the credit balance of the accounts are 121

to be written on the credit column. The total of both the columns must be equal. The following are the four methods for preparing a trial balance.

1. Total Method :Under this method of preparing a trial balance, debit total and credit total of each account of ledger are recorded in the trial balance. 2. Balance Method :Under this method of preparing a trial balance only balance of each account of ledger is recorded in trial balance, some account may have debit balance and the other may have credit balance. All these debit and credit balances are recorded in it. 3. Total and Balance Method :This method is the combining of the above two methods i.e. when under this method both debit and credit total of each account and also balance of each account are recorded it is called as total and balance method. 4. Elimination of Equal Totals Method :-

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Those account whose debit total are equal to the credit total i.e. the account which have no balances are eliminated. Such accounts are not recorded in trial balance thus it is the elimination of equal total method of trial balance. (FORMAT OF TRIAL BALANCE)
S.No. Ledger Accounts L.F. Dr. Amount Cr. Amount

Total

Errors Not Disclosed by Trial Balance :The following errors are not disclosed by a trial balance even when it tallies. These are also known as limitations of Trial Balance. 1. Error of Principle :Sometimes errors are made due to in sufficient knowledge of accounting principle. Hence when error are created due to violating of accounting principles, rules & regulation, then such error are termed as errors of principle. For eg if a cloth merchant 123

purchases machinery, hence machinery accounts is to be debited but if purchases account has been debited even the trial balance will tally, but there remains a mistake of principle. It means it is clear that clear distinction must be made between capital and revenue expenditure, capital and revenue receipt and capital and revenue losses. If it is not done it is regarded as error of principle. 2. Error of Omission :When no entry is made for a transaction in journal or in its subsidiary books or posting in Ledger then also the trial balance will tally. Such an error is called as errors of omission. Such error are not disclosed by trial balance. However if the posting of transaction is partly omitted it will certainly effect the trial balance from being tallied. 3. Error of Commission :When a business transaction are recorded and posted in wrong manner then such errors are referred to as error of commission. This may be in case of recording of wrong amount in subsidiary books, posting an amount to wrong accounts, wrong balancing of an account, wrong totaling etc. Error of commission of the nature of one sided errors affect the agreement of trial balance eg. 124

wrong totaling, posting on wrong side of the account, posting of wrong account, wrong balancing etc.

4. Compensatory Errors :When one error is compensated by another error eg. If discount allowed Rs. 100/- not debited to discount allowed account whereas interest received Rs. 100/- but not credited to

interest account trial balance will agree such an error is called as compensatory errors. 5. Error of Misposting :When wrong posting or misposting is made to a wrong account instead of a correct one, although amount is correctly recorded eg. sold goods to B but wrongly debited to D's account then too the trial balance will agree such an errors are called as errors of misposting.

FINAL ACCOUNTS From the Trial Balance the final accounts are prepared. In order to find out profit or loss and to know the financial position of the business at the end of the financial year or at the end of a prescribed 125

period, financial statement are prepared for reporting to users of accounting for decision making. These financial statement are prepared with an objective to focus on the financial results of operation of business during the period under consideration and financial position at the end of the period. The financial statement prepared for this purpose is termed as final accounts. Final accounts refers to the preparation of Trading Accounts, Profit and Loss Accounts and Balance Sheet . Balance Sheet is a statement but even then it is included in final accounts because of the following (1) Final balances of all the accounts of the Ledger are found out. These balances are transferred to trial balance. From the trial balance some balances are transferred to trading

accounts while some are transferred to the profit and loss account and remaining balances are transferred to Balance Sheet. As all these three namely Trading account, Profit and Loss account and Balance Sheet contains final balances of all the accounts of ledger they are called final accounts (2) As Trading Profit and Loss Accounts and Balance Sheet constitute the final stage of accountancy, hence they are called Final Accounts. The Accounting followed in the

126

Cooperative societies is the Double Entry System where they prepare the -

(A) (B) (C)

Trading Account Profit and Loss Account Balance Sheet

(A)The Trading Account :The trading account gives the overall resent of trading i.e. purchasing and selling of goods. In other words it explain whether purchasing of goods and selling them has proved to be profitable for the business or not. It takes into account on the one hand the cost of goods sold and on the other the value for which they have been sold. In case the sales value is highest than the cost of goods sold, will be a profit while in a reverse case there will be a loss. The profit disclosed by the trading account is termed as Gross Profit similarly the loss disclosed the Trading Account is termed as Gross Loss. Thus, this account is prepared to find out gross profit or gross loss on the basis of purchases or sales. From the sales of a specific period 127

( mostly of one year) the cost of sales ( of the same period) is deducted and balance is treated as gross profit. Cost of Goods Sold or Cost of Sales = Opening stock + Purchases + All direct Expenses incurred in purchases and bringing the goods to the shop or go down of the person, firm or company in whose book trading account is prepared. From the total of these three namely opening stock,

purchases and direct expenses, closing stock is deducted and the balance is known as cost of goods sold or cost of sales. The excess of sales over the cost of goods sold is known as Gross Profit. Here the word "Gross" has been used because the indirect expenses and other revenue incomes have not been considered. When they too are considered it becomes net profit . If the cost of sales is more than sales, then the balance indicates gross Loss. The trading Account is a nominal account and is closed by transferring gross profit or loss to profit and loss account.

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Following is the specimen of Trading Account (SPECIMEN OF TRADING ACCOUNT) Particulars To Opening Stock To Purchases Less : Ret Outward To Wages To Carriage or Freight To Fuel & Power To Import Duty To Dock Charges To Royalty Based on Production To Manufacturing Expenses To Gross Profit c/d ( Balancing figure)
xxx xxx

Amount (Rs.) __

Particulars By Sales Less: Ret Inward __ __ __

Amount (Rs.)

__ __ __ __ __ __

By Closing Stock By Gross Loss c/f ( Balancing figure)

__

__ __

Rs. Various Trading Accounts Items (Debit Side) :129

Rs.

1. Opening Stock :The figure will be available and will be found in the trial balance . The opening stock in case of a manufacturing business will consist of raw materials, finished goods and work in progress

( unfinished goods). A new business will, naturally have no opening stock in the first year. 2. Purchase and Purchase Return :The purchases include the amount of the raw material purchased by the traders and will be shown after

deducting the purchase return if any and the remaining amount will be shown in the amount column. The purchase return is that part of purchases which is returned. 3. Wages :The wages paid to the workers engaged in the manufacture of goods directly or indirectly is debited to the trading Account. 4. Carriage or Freight :All the expenses to bring the purchased goods or materials to the firm' go down should be debited to the trading account one of them is the Carriage or Freight which is paid to bring the material to the place of business. 130

5. Fuel to Power :Coal used to run boilers which provide steam to run machinery is naturally debited to the trading account. Electricity used to drive machinery is similarly treated. 'Power should be distinguished from electricity used for lighting 'Power is generally used to denote electricity for driving machinery. 6. Import Duty :The import duty is a charge which is to be paid when the goods are imported and it is debited to trading account. 7. Dock Charges :The dock charges are the charges which are to be paid for loading and unloading on ships for the materials and goods. Such expenses are shown in debit side of trading account. 8. Royalty Based on Production :If any royalty is paid by a trader which is based on the production it will be also written in the debit side of the trading account. 9. Manufacturing Expenses :The manufacturing expense are such expenses which are incurred on the conversion of raw material into finished 131

product, such an expenses if are given will be debited to the trading Account.

10.Gross Profit :The excess of the sales over cost of goods sold is called as gross profit if the credit side of the trading account is more the than debit side of trading account we get the gross profit and it is transferred to the credit side of profit and loss account. Various Trading Account Items ( Credit side) :1. Sales and Sales Returns :The sales appears on the credit side of the trading account . If any goods have been returned by customer, the Return Inward Account will show the amount, this amount should be deducted from the sales thus the sales deducted by the sales return will be shown on the credit side of the trading Account. 2. Closing Stock :At the close of a period, a trading firm will have a certain quality of goods on hand - normally only a part of the goods purchased are sold away. The cost of the goods still on hand is 132

ascertained and put on the credit side of trading account and is termed as the closing stock.

3. Gross Loss :The excess of the cost of goods sold over the sales is called as "Gross Loss" that is if the debit side of the trading account is more than the credit side the trading account will show the gross loss and such a gross loss is transferred to the debit side of the profit and loss account. Thus, the trading account shows the trading position of a business house in case of the Cooperative Societies, Uttar Pradesh the trading account are prepared as per the schedule where the items are stated in various schedule and thereafter the Gross Profit is

derived. Thus in order to know the effectiveness of the trading in the organization and know trading profit. The U.P. Cooperative Societies prepares their trading account and ascertains there gross profit or gross loss.

(B)The Profit and Loss Account :133

The trading account simply discloses the gross profit or loss made by a businessmen on purchasing and selling of goods. It does not take into account the other operating expenses incurred by a businessman during the course of running the business that is a businessman in order to execute order have to establish an office for taking policy decisions and implementing them. All such expenses are charged to profit and loss account. Apart from that a businessman may have other source of income eg. he may receive rent from some of his business properties, he might be getting interest on investment. Thus, in order to ascertain the true profit or losses which the businessmen have made during a particular period it is necessary that all such expenses and incomes should be considered. The profit and loss account consider all such expenses and incomes and gives the net profit or loss suffered by a businessman during a particular period. Profit and loss account is prepared to find out the net profit or loss. All those expenses and losses, incomes and gains not recorded in trading account are recorded in Profit and loss account. These expenses are termed as indirect expenses because these expenses are directly not related with the acquisition of goods and to 134

bring them in saleable form. All the nominal accounts which are left after preparing a trading account are to be transferred to this account. This transfer is however is to be made on the basis of double entry principle i.e. all expenses eg. office and administration , selling and distribution will appear on the debit side whereas incomes on credit side after crediting the gross profit as shown by the Trading Account. If the total of the credit side is more than debit side, excess is called net profit and if total of its debit side is more than its credit side excess is called as not loss. The Profit & Loss account is generally prepared as :

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(SPECIMEN OF PROFIT AND LOSS ACCOUNT) Particulars To Gross Loss b/d To Salaries & Wages To Rent, Rate, Taxes To Printing & Stationery To Commission Paid To Advertisement & __ __ __ __ __ Amount (Rs.) __ __ __ __ __ By Gross profit b/d By Discount Received By Rent Received By Misc. Incomes By Net Loss (Trans to Capital A/c) __ __ __ __ __ Particulars Amount (Rs.)

Insurance To Bad Debts To Depreciation To Discount Allowed To Misc. Expenses To Net Profit (Trans to Capital A/c)

__ xxx Rs. Rs. xxx

Various Profit & Loss Account Items ( Debit Side) :136

1. Gross Loss :The figure of the gross loss is brought down from the trading account and it is posed in the debit side of the profit and loss account. 2. Salaries and Wages :During the course of business the amount payable to the employees for their services are called as salaries on the other hand the amount payable to the workers are called as Wages. But if salaries and wages are of indirect nature then only it will be debited to profit and loss account.

3. Rent, Rates and Taxes :Where the operation of business is carried out in rental premises there the businessman has to pay the rent and where the office is owned by the businessmen he has to pay tax thus these expenses are debited to profit and loss account. 4. Printing and Stationary :Where the official work is carried on there the stationary and charges of printing are to be paid by the businessmen

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which is a kind of office expenses thus the amount of printing and stationary is to be debited to profit and loss account. 5. Commission Paid :The commission paid is an expense of the business, the commission is of two types, first on monthly basis such commission is paid to promote sales by the business, secondary the commission is on fixed basis or the commission on turnover which is paid on sales commission on business brought by agents is an item of expense. Thus the commission to the agents which is paid is debited to the profit and loss account 6. Advertisement and Insurance :The amount of expenditure incurred in making the goods aware to the public amounts to the expenditure on advertisement on the other hand the amount paid for securing the business is called as insurance payable. Both the items are debited to profit and loss Account 7. Bad Debts :The Bad debts denotes the amount lost due to non payment by the debtor to whom the good were sold on credit thus, the bad debts is a loss therefore it is debited to profit and loss account. 138

8. Depreciation :The depreciation denotes decreases in the value of an asset due to wear and tear, lapse of time, obsolescence, exhaustion and accident eg a motor car purchased get depreciated on account of its constant use, A property purchased on lease for Rs.12000 for 12 years will depreciate thus, the loss in the value of the assets are stated as depreciate and it is also debited to the profit and loss account. 9. Discount Allowed :The discount is a relaxation or rebate provide in the purchase. If the discount is allowed it means on the other hand it is a loss to the businessman because otherwise it would have yield a profit thus if discount is allowed it is treated as an expense of the business therefore the item discount allowed is debited to profit and loss account.

10. Miscellaneous Expenses :The various miscellaneous expenses include the various expenses on packaging, sales promotion, other charges, legal charges, audit fees, sale tax and other expenses, all these miscellaneous expenses are debited to the profit and loss account. 139

11.Net Profit :The profit and loss account is prepared to ascertain the profit and loss from the business, if the incomes are more than the expenses the profit and loss account will show the net profit it means the businessmen have gained a profit from business.

Various Profit and Loss Account Items ( Credit side) :1. Gross Profit :The figure of the gross profit is brought down from the trading account and is posted in the credit side of the profit and loss account. 2. Discount Received :The discount is a rebate or a relaxation provided in the business transactions, if the discount is received by a businessmen it means that it has a profit to a businessmen and is deemed as the income of the business thus the amount of discount received is credited to the profit and loss account and is shown in the credit side of profit and loss account.

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3. Rent Received :The rent also have dual impact, it if rent is paid or payable it is assumed as a business expense but if rent is received it is assumed as the income of the business and is credited to Profit Loss Account and thus is shown in the credit side of profit and loss account. 4. Miscellaneous Income :As there are various types of the miscellaneous expenses in the same way there are miscellaneous income in a business which are credited and are shown in the credit side of profit and loss account. 5. Net Loss :As the main aim of the preparation of the profit and loss account is to ascertain the net profit or net loss, if the debit side that is the expenses are more than the income, the profit and loss account will show the net loss. It means the businessman have loss on business. Thus, the main objective after the preparation of the profit and loss account is to know the net profit or net loss from business in a particular year. In Cooperative Societies too the profit and loss 141

account depicts the profitability and losses of the various business conducted by the societies and they show the profit and loss account schedule wise. (C)The Balance Sheet :Having prepared the trading account, profit and loss account, a businessmen will like to know the financial position of his business, for this purpose, he prepares a statement of his assets and liabilities as on a particular date such a statement is termed as a "Balance Sheet". Thus, the balance sheet is not an account but only a statement containing the assets and liabilities of a business on a particular date. It is as a matter of fact a classified summary of the various remaining accounts after the accounts relating to income and expenses have been closed by transfer to trading and profit and loss account. Thus, a Balance Sheet is a statement which represents financial position of a business at a prescribed date. This prescribed date is the date at which final accounts are prepared. It is a sheet of balance which means that at the end of the year all the accounts of the ledger are closed and balance of nominal accounts are transferred to trading account or profit and loss account but there are personal and real 142

accounts whose balance are carried forward, these balance are recorded in a statement which is called as a Balance Sheet. Balance sheet is a summary of whole of the accountancy record. Transaction are recorded in journal. Entries from journal are posted in ledger. Balances of ledgers are recorded in trial balance. From the trial balance which relate to nominal account are transferred to trading account or profit and loss account. Balance of trading account is transferred to profit and loss account and balance of profit and loss account is transferred to the balance sheet. Apart from that remaining balances of trial balance are also transferred to balance sheet thus, some balances of trial balance are taken to balance sheet directly which other balances of trial balance are taken to balance sheet indirectly. The balance sheet has two sides, on the left hand side the "liabilities" of the business are shown and on the right hand side the "Assets" of the business are shown. According to Palmer "The balance sheet is a statement at a given date showing on one side the trader's property and possessions and on the other side his liabilities." 143

According to Freeman "A balance sheet is an itemized list of the assets, liabilities and proprietorship of the business of an individual at a certain date." According to Institute of Certified Public Accountants " a list of balances in the asset and liability accounts. This list depicts the position of the assets and liabilities of specific business at a specific point of time." The Balance sheet is a sophisticated report which serves as a valuable source of information to the users of financial statements eg. the owners and outsiders. It presents in a summary form, a picture undiluted by detail, financial position of the business at a particular date. It gives us a good idea about the financial position of a business unit if we analyze, scrutinize, interprets the assets and liabilities at a particular date.

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(SPECIMEN OF BALANCE SHEET) Liabilities Bank Overdraft Bills Payable Sundry Creditors Outstanding Expenses Long term Loans Reserve and Funds Capital Add: Net Profit Less: Drawing Amount (Rs.) __ __ __ __ __ __ __ __ __ Cash in Hand Cash at Bank Prepaid Expenses Sundry Debtors Bill Receivable Income Outstanding Furniture Copyright Vehicles Plant and Machinery Land and Building Closing Stock: Raw Material Work in Progress Goodwill __ __ __ __ __ __ __ __ __ __ __ __ __ __ __ Assets Amount (Rs.)

xxx Rs. Items of Various "liabilities" :-

Rs.

xxx

The term "Liabilities" denotes claims against the assets of a firm whether those of owners of the business or of the creditors. As a matter of fact the term "Equity" is more appropriate 145

than the term liabilities. The liabilities are claim of the creditors against the enterprise arising out of past activities that are to be satisfied by the disbursement or utilization of corporate resources. The liabilities may be of two types : 1. Current Liabilities 2. Fixed or Long Term Liabilities 1. Current Liabilities :The term current liabilities is used for liabilities which a payable within a year from the date of balance sheet either out existing current assets or by creation of new current liabilities. The following are the various current liabilities. (a) Bank Over Draft :- Payment to be made in Banks (b) Bills Payable :- The amount paid written on Bills (c) Sundry Creditors :- The person to whom payment is to be made (d) Outstanding expenses :- These are such expenses for which services have been received by the business but for payments have not yet been made (e) Short term loans :- These are such loans from bank which are payable within one year from the date of the balance sheet.

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(f) Advance Payments :- These are such payments received by the business for the services to be rendered or goods to be supplied in future. (2) Fixed Liabilities :All the liabilities other than current liabilities come under their category. In other words these are liabilities which do not become due from payment in one year and which do not require current assets for their payment such as eg. Loans on Mortgage, Debenture, Reserves and Funds etc. Items of Various "Assets" :The term 'Assets" denotes the resources required by the business from the funds made available either by the owners of the business or other. An asset is something which benefits the future. It thus includes all right or properties which a business owns i.e. cash investment, bills receivable, debtors, stock of raw materials, work in progress and finished goods, land building, machinery, trade mark, patent, rights etc. are some examples of assets. (a) Current Assets:The current assets are such assets which can be easily converted into cash such as cash or cash can be easily realized from 147

them within the period of one year but if the operating cycle of the business is less than one year they can be realized in cash during short period such as stock debtor, bills receivable etc. (b) Fixed Assets :The fixed assets are the assets of permanent character. They are acquired with a view that they will help in the business year after year. The fixed assets may be tangible or intangible. Tangible assets are those which have existence and can be touched and seen like plant, building, machinery, land etc. whereas intangible assets are such which cannot be touched and seen though they have a definite value eg. good will, patent, trademark, copyrights etc. (c) Washing assets :The assets which are exhausted completely by use and cannot be replaced in the normal way are regarded as washing assets eg mines. If there is a coal mines, whole of the coal of the mine has been taken out, then fresh coal cannot be created, therefore the mine is treated as washing assets. (d) Contingent Assets :An asset whose existence and ownership depends upon the happening or non happening of a specified events 148

eg, a right to sue for infringement of trade market or a suit for claiming a certain amount . If this suit is won, the amount will be received thus the right to have or claim some property on the happening of an event is contingent asset. These assets are not shown in Balance sheet because one of the conventions of accounting is that provision for future losses is made but no consideration is made for uncertain future property or income. (e) Fictitious Assets :The assets which are really speaking not assets but shown in the assets side are called as fictitious assets eg. underwriting commission, brokerage, discount on issue of shares or debentures, interest paid out of capital during construction, development expenditures, not adjusted, heavy advertisement expenses and preliminary expenses etc. All there expenses have debit balance and they are written off through profit and loss account gradually during some year, hence unamortized amount of these expenses appear in Balance Sheet. The Balance Sheet is a sheet which depicts the financial position of a business it have some disadvantages or limitations on its part they are as follows 149

Limitation of Balance Sheet :1. The Balance Sheet as indicates the financial positions at a particular date rather a moment only and not of the whole period. 2. Only those assets are recorded in the balance sheet which can be expressed in money. Services of proprietor are very important for the business, but they are not recorded in it. 3. It is prepared on a historical cost basis and changes in prices are not considered. 4. The Balance sheet is a statement of fact and not opinion. Assets are facts while there valuation is a matter of opinion. 5. It is based on accounting policies regarding depreciation and valuation of stock etc. 6. Different assets are valued according to different rules 7. Window dressing may be done in balance sheet 8. It is a summary of accounting record. It lacks various explanation for grouping etc. More information is needed for the use of those who depend on the information of the balance sheet in other words who are the users of the Balance Sheet. After the Balance sheet has been prepared and the both side of the balance sheet that is the assets as well as the liabilities 150

have been matched it is easy for a businessman as well as any investors to study it and do the analysis and thereby to interpret the results. Any investor or a shareholder who wants to invest or purchase the shares of the business can do the analysis and interpretation of these accounts in order to have true and fair idea about the earning capacity and financial position of the business. This is the last or the final stage in the double entry system. The final accounts of the Cooperative Societies U.P. is based on the double entry system where they prepare the trading account, profit and loss account and balance sheet. The business of the Cooperative Societies generally is based on agricultural produce and sale of agricultural produce and implements where they prepare their double accounts schedule wise, the specimen of the final accounts of group of cooperative societies an example of (P.C.F.) is given as below :

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152

153

154

155

156

157

158

159

160

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ACCOUNTING IN CO-OPERATIVE SOCIETIES AND ITS RELATION WITH ACCOUNTING PRINCIPLES


"Accounting is the language of business". In order to have control over the language, one must have command over the grammar. In the same way knowledge of the accounting principles is necessary for good command of accounting. The dictionary meaning of the word 'Principle' is fundamental truth on law. According to the American Institute professed as a guide to action. It is a basis of Certified Public Accountants, accounting principles are general laws or rules adopted or of conduct or practice . Accounting principle are really speaking the rules which are based on the customs, usages and transaction and all accounting practices are based on them. These principles are not fixed but they vary according to changes in time. If a particulars problem has been solved according to one method evolved by one who solved the problem and the same method is approved and adopted by others, it becomes a principle . Some accountants have used the word standard in place of principles. Hence they use the word accounting standard in place of according principles. Thus, Accounting principles may be defined as those rules of action or conduct which are adopted by the accountants universally while recording accounting transaction. "They are body of doctrines commonly associated with the theory and procedure of accounting, serving as an explanation of current practice and as a guide for selection of 162

conventions or procedures where alternative exist." These principle can be classified into two parts :(A)ACCOUNTING CONCEPTS (B)ACCOUNTING CONVENTIONS

Generally Accepted Accounting Principles ( GAAP) :The generally Accepted Accounting Principles ( GAAP) may be expressed as those rules, guidelines and principles which are derived from experience and practice and when they are useful to accounting practice they, then become accounting principle. If any principle posses all the given below characteristic they are accepted by all and are known as accounting principles. Therefore they are called as Generally Accepted Accounting Principles. Characteristics of Accounting Principles :If the accounting principles posses the following characteristics they are accepted by all

1. Objectively :163

It must be based on facts and impartial attitude ought to have been adopted for it. If it is so the principle is said to possess objectivity. 2. Application :If the application of the principle is possible it is regarded as good principle. In case theoretically principle is sound but its application is difficult then the principle has no value. 3. Use :The principle should be such by whose use utility of accounting record is increased. Suppose a principle has objectively and it is applicable also but there is no use of this principle in accountancy record then also the principle is useless. 4. Simplicity :As a principle is a fundamental truth or law thus in order to be applied the law must be simple if it is simple it will command popularity. Thus, the accounting principle have been developed by various agencies out of which most important are various bodies related with accounting such as. Institute of Chartered Accountants of various countries of the world have done commendable work in this respect 164

as Institute of Chartered Accountants of India ( ICAI), American Institute of Certified Public Accountants (AICPA) and Institute of Chartered Accountants of England ( ICAE). It has been pointed out earlier that accounting is the language of business. Just as knowing of grammar is essential for understanding and making correct interpretation of language in the same way it is necessary to know certain accounting conventions and concepts to understand the language of business namely accounting. The accounting principle constitute the various accounting concepts (conditions upon which science of accounting is based) and conventions ( customs or traditions which guide the accountant).

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(A)ACCOUNTING CONCEPTS :The term concept includes those basic conditions upon which the science of accounting is based. There are some assumptions on which accounting is based. These assumptions are most natural and are not forced ones. These are general motions hence they are called, concepts. These concepts are also known as postulate because postulate too are necessary assumptions. A concept is a self-evident proposition i.e. something taken for granted. Concepts are also termed as ground rules that govern accounting. These concepts are explained as below. 1. Accounting Period Concept :As when a business is carried on each businessmen wants to know the result of his business i.e. the results of his investments and efforts after a certain period. The life of the business is divided into appropriate segments for studying the result shown by the business after each segment. For this purpose a period of one (1) year or 365 days or 52 weeks is considered as the accounting period concept. It is this period 167 which is called as

accounting period. Generally speaking the real income from a business can only be known after the business comes to an end but this time period is too long and no businessmen can wait for such a long period for knowing its profit and loss therefore the accounting period is mostly for one year. There are large number of the decision and various corrective steps which are to be taken by the businessmen from time to time. It is therefore absolutely necessary that after each segment or time interval the businessmen must "stop" and " see back" as to how the things are going. At the end of the accounting period the businessman prepare the income statement and a Balance Sheet in order to ascertain the true profit and loss as well as financial position thus the accounting period shows financial position in a particular year. Thus, there are various advantages of accounting period . (a) If accounts are maintained for a year, the comparison of the financial position between two years can be made. (b) The earning capacity of one year can be compared with other. (c) These comparison helps the businessman or the management in planning for future and increasing the efficiency of business. (d) It is helpful for the outsiders & investors 168

As far as the accounting in cooperative societies is concerned the Cooperative Societies follow the accounting period concept and they prepare the accounts for a particular period stated in the accounting period concept which is a one year period. After the deep analysis of the financial accounts (various accounts and Balance Sheet) it is clear that since last five years the Cooperative Societies are preparing accounts for one year that is the financial year. 2. Dual Aspect Concept :The dual Aspect Concept is also one of the basic concept of accounting. The accounting concept states that every transaction affects two accounts and every business transaction has a two fold effect. All the business transaction are recorded on the basis of this concept. No transaction is complete without double aspect as this concept is the foundation on which the entire system of bookkeeping and accounting is based. According to the dual aspect every business transaction has a dual effect. For example of Mr. Ashok starts a business with a capital of Rs. 10,000. Therefore are two aspects of this transaction, on one hand the business has an asset of Rs. 10,000 on the other hand, the business has a to pay to the proprietor a sum of Rs. 10,000, which is taken as 169

proprietor's capital. This expression can be shown in the form of the following equation :-

Capital ( Equities) = Cash ( Assets) 10,000 = 10,000 The term 'Assets' denotes the resources owned by a business while the term "Equities" denotes the claims of various parties against the assets. The equities is of two types the (i) owners equity (ii) outsiders equity. The owners equity is the capital the owner invested in the business while the outsiders equity is the claim of outside parties such as creditors and debenture holders against the assets of the business since all the assets of business are claimed by someone ( either owners or outsiders), the total of assets will be equal is the total of liabilities Thus, Equities = Assets or Liabilities + Capital = Assets

Thus as per the concept for every debit there is an equivalent credit. As a matter of fact the entire system of double entry book keeping is based on this concept. Thus the effects of double entry is as follow

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1. If one aspect of a transaction is recorded and other is ignored the record will not indicate true position. 2. This concept helps in detecting the errors of employee and having strict control over them. As far as the accounting in Cooperative Societies is concerned the Cooperative Societies follow the dual aspect concept as they record the transactions in trial balance from the subsidiary books and then from trial balance both debit and credit items are posted in trading, profit and loss account and the balance sheet. 3. Money Measurement Concept :As per the money measurement concept only those transaction are recorded in the book of accounts which can be expressed in money. Those transaction which cannot be expressed in money fall beyond the scope of accounting. The benefit of this expression is that it provides a common denominator or a unit of measurement by means of which heterogeneous facts about a business can be expressed in terms of quantities which can be either be added or subtracted. Since different transaction occur they are recorded and interpreted in various account in monetary terms, so accounting helps to express heterogeneous economics activities in terms of money. 171

Actually the basic purpose

of using money is to implement an

element of uniformity among diversity. Therefore fixed assets like land, furniture and fixtures are expressed in terms of money and not in term of area ( for land) or quantity (Furniture & Fixtures) for recording in accounts properly like other assets eg cash in hand, cash at bank (which are expressed in monetary term), but there are few shortcoming of this concept. 1. It does not recognize the changes in the purchasing power of monetary unit. 2. It also fails to keep any record of such matters which cannot be expressed the term of money for eg. Human genius which may be capable of being highly productive, is not considered in accounting as there is no acceptable value in exchange. That is why a fact & an event which cannot be expressed in terms of money cannot be recorded in books of account. 3. Thirdly, the money value of that date is recorded on which transaction has taken place later on due to inflation or deflation when change in money value take place, there changes are not considered.

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After the deep analysis of the financial statements of the Cooperative Societies it can be concluded that they have recorded all such transaction which are in terms of money and all such transaction which are not in terms of money are not recorded, from the subsidiary book it can be concluded that in Journal too the record are in terms of money thus they follow the money measurement concept.

4. Realisation Concept :According to the realisation concept it is said that revenue is recognized when a sale is made and sale is considered to be made when the goods passes to the buyer and he becomes legally liable to pay for it. As accounting is a historical record of transaction, it records what has happened. For eg. If A places an order with B for supply of certain goods which are yet to be manufactured, on receipt of the order, A purchases raw material and employ workers & manufactures the product & delivers it to A. A makes payment on receipt of goods. In the above case sale is considered at the time when goods are delivered and not at the time of order. However there are certain exceptions to this concept. 1. In case of hire purchase the ownership of goods passes to the buyers only when the last installment is paid but sales are presumed to have been made to the extent of installment received and installment outstanding. 173

2. In the case of contract accounts the contractor is liable to pay when the entire contract is completed but the profit is calculated on the basis of works certified year after year as per certain accepted accounting norms. In the Cooperative Societies the accountant while accounting follow the realisation concept as sales are shown when the goods are sold and money is received by the person. As sales are recorded only after the goods are delivered and price is received thus, the realization concept is also followed by the Cooperative Societies. 5. Separate Entity Concept :One of the most important concept of accounting is the separate entity concept which says that business is treated separate from its owners. All the transactions are recorded in the books of the business and not in the books of proprietor. On the basis of this concept, the proprietor is treated as the creditor for the

business, when he contributes capital, he is treated as the person who has invested his amount in business therefore capital appears in the liability side of the balance sheet of proprietor. Thus, under this concept it is assumed that the business unit is distinct and completely separate from its owner. For 174

accounting purposes the business enterprise exist in its own right. The various effects of this concepts are 1. The financial position of the business can be easily find out. 2. The earning capacity of the business can be easily ascertained. The accounting in the Cooperative Societies is as per the separate entity concept of the accounting. After deep analysis of the balance sheet of the Cooperative Societies it can be analyzed that capital is shown in the liability side of the balance sheet which is a symbol that business of Cooperative Societies is different from the share holders / members who own it. Thus the accountant in Cooperative Societies follow the Separate Entity Concept. 6. Going Concern Concept :This concept relates with the indefinite long economic life of the business. The assumption is that business will continue to exist for unlimited period unless of course it is dissolved due to some reason or the other. This is the reason why in balance sheet market price of fixed assets is not considered when the final accounts are prepared, record is made for outstanding expenses and prepaid expenses because of the assumption that the business will continue for a long period. 175

If the condition of the business is depreciated to such an extent that it is to be closed down, even then accountant's concept is that the business is to continue and he records all big and small transaction, he never stops making record on the possibility of closing down the business. This is the best quality of an accountant which he based on this concept of going concern. Similarly where the long term loan is taken, it is assumed that the loan will be repaid after a long period of time this states that the business will go for a long period and thus states the continuance for a fairly long time. Thus the various effects of this concept are as follows. 1. The working life of an asset is taken into consideration for writing of depreciation because of this concept. 2. Whatever bad position of the business may be it does not affect on the accounts aspect of the business. 3. The accountant always remain hopeful about the continuity of business and he does not stop writing transactions even though the condition of business falls.

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The going concern concept of accounting is followed in the accounting of Cooperative Societies it can be seen in the financial statement ( Balance Sheet) of Cooperative Societies that an item of long term loan is in the liability side of the balance sheet which is a symbol that business is considered to be continued for a long period of time as payment of long term loan is made after a long period of time thus the concept of going concern is followed in the accounting of Cooperative Societies. 7. Cost Concept :The cost concept is also one of the important concept of accounting According to this concept the fixed assets are recorded at a price at which they are acquired. This price is termed as 'cost'. In balance sheet however these assets do not appear always at cost price every year, but systematically it is reduced by the amount of depreciation (annual) thus they appears at the amount which is cost less depreciation. This value is called as book value. Thus, according to cost concept (a) An asset is ordinarily entered in the accounting records at a price paid to acquire it and, (b) This cost is the basis for all subsequent accounting for the assets. 177

For e.g. if a businessmen purchases a plot worth rupee 50,000 the assets will be recorded in the books for rupees 50,000 ever if its market value is Rs. 60,000. This concept however has an advantage since the valuation of asset does not depend on the market value which again depends on the subjective views of accountants But this concept also suffers from one limitation. That is, as the cost concept ignores the effect of excessive inflation in the present economy it becomes irrelevant for the purpose of valuation of assets . Though there are numbers of practical difficulties the concept of cost still serves as a fair and adequate basis for the valuation of assets. The various effects of this concept are 1. Due to cost concept, market price is ignored and the balance sheet indicates financial position on cost and expired cost basis. 2. This concept is mainly for fixed assets, current assets are not affected by it. They appear in the balance sheet at cost or market price, whichever is lower, though they too are acquired at cost price. In accounting of Cooperative Societies the assets (fixed assets) are recorded at the cost at which they are purchased. After the deep study of the financial statement of the Cooperative Societies it can be 178

analyzed that the fixed assets are decreased in value year after year after charging depreciation thus its value keeps on decreasing. Thus the cost concept is followed in the accounting of Cooperative Societies. 8. Matching Concept :Each and every businessman is eager to make maximum profit at minimum cost. Thus in a particular accounting period which is one year he tries to find out revenue and cost for the year and compares it with that of another year and thus he can make an idea about progress or downfall of business. Efforts made to make revenue is termed as cost and positive results of these effort are termed as revenue. This concept is also called as concept of 'efforts and accomplishment' and is based on the accounting period concept. The objective of running a business is to earn profit. In order to ascertain the profit made by a business during a period, it is necessary that revenue of the period should be matched will the cost or expenses of the period. The term 'Matching' means appropriate association of related revenues and expenses. In other words income made by the business during a period can be measured only when the revenue earned during a period is 179

compared with the expenditure incurred for earning that revenue. The objective of accounting is that the accounting record be made in such a manner that cost may be compared with revenue. In case the accounting method do not facilitate this comparison then accounting method is regarded as unsatisfactory. This is why an accountant records all expenses of a year whether they are paid in cash or are outstanding and he also records all revenues whether they are

recorded in cash or are earned but not received in cash. The various effects of this concept are :1. The proprietor can easily know about his profit or loss with the application of this concept. 2. The businessman can make efforts for creating economy, increasing efficiency and in increasing income on the basis of the application of this concept. Apart from that the application of this concept create some problems also they are discussed as below :1. Some items of expenses e.g. preliminary expenses, expenses in connection with the issue of shares are debenture, advertisement expenses etc. cannot be easily identified and matched against revenues of a particular period. 180

2. Another problem is that how much of the capital expenditure should be written off by way of depreciation for a particular period for matching against revenue creates the problems of finding out the expected life of the asset. As such, accurate matching is not possible. 3. In case of long term contract, usually amount is not received in proportion to the work done. As a result, expenditure which are carried forward and are not related to the income received, may create some problem. As far as the accounting in Cooperative Societies is concerned the matching of cost and revenue concept is followed while making financial statements. As the financial statements of Cooperative Societies include the Trading Account, Profit and Loss Account and the Balance Sheet. Thus when the profit and loss account is prepared the expenses and incomes are matched, so as to get net profit or loss. As profit and loss account in Cooperative Societies are prepared. Thus the matching concept is followed in the accounting of Cooperative Societies.

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9. Accrual Concept :According to the accrual concept, in the event if a transaction has been entered into, its consequences will follow, normally all the transaction are settled in cash but even if cash settlement has not yet taken place it is proper to bring the transaction or the events concerned into the books. Income or profit arises only out of business operations when there has been an increase in the owner's share of the assets of the firm (called owner's equity) but not if the increase has resulted from money contributed by the owner himself. Any increase in the owner's equity is called as revenue and anything that reduces the owner's equity is expense. If the accounting period is one year for a business, whatever net profit is made during the year, it increases the owner's equity i.e. capital. The net loss made during the year decreases owner's equity i.e. capital, excess of revenue income over revenue expenses is net profit which excess of revenue expenses over revenue income is live loss. The following particulars are relevant for this concept.

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1. If any revenue income is received during the current year, but some portion of it belongs to the next year i.e. this portion has not been earned during the current year then this portion of income should be deducted from the income received during the current year. 2. If the revenue expenses are paid during current year but some portion of these expenses belong to the next year i.e. this portion has not been due during this year then this portion of expense should be deducted from the revenue expenses paid during the year. 3. All revenue income earned and accrued during the current year are recorded without carrying whether they are received or not during the current year. 4. All revenue expenses becoming due and accrued during the current year are recorded without carrying whether they are paid or not during the current year. The various effects of this concept are as below 1. Cash and credit both type of transaction are recorded under this concept. 2. It helps in finding out the earning capacity during a year. 183

3. It helps in assessing the financial position of an enterprise at the close of the year. As far as the accounting in Cooperative Societies concerned it follows the accrual concept of accounting because outstanding expenses and other outstanding expenses are show in liabilities side which means that it creates liability towards third party. 10.Capital Concept :One of the concept of accounting is the capital concept as the name "Capital" means this concept is related with the capital in the business. This concept is that record for the capital be made separately. The proprietor or the owner or businessmen may contribute capital either in cash or in goods or partly in cash and partly in goods In case of sole trading and partnership concern profit of each accounting period is transferred to the capital account but in the case of limited companies, profit is not transferred to capital account thus the accountant must keep this concept in view while recording capital and profit. The various effects of this concept is as follows 1. This concept helps to ascertain the earning capacity of business easily. 184

2. It also helps in comparing the earning capacity of various periods and thus the efficiency of the business can be ascertained. In the accounting of Cooperative Societies the Share holder' fund is shown in the balance sheet which means separate record of capital is maintained thus the accountant follow the capital concept.

(B)Accounting Conventions :The accounting is based on usages and customs. Customs or usage is a practice which is in use since long. Naturally accountants have to adopt that usage or custom. These are termed as conventions in accounting and are also called as doctrines and are used in the preparation of final accounts also. The term 'Convention' includes those customs or tradition which guide the accountant while preparing the accounting statements. It refers to the general agreement on the usage and practices in social or economic life i.e. it is a customary practice, rule, method or usage. In other words it is an accounting procedure followed by the accounting community on the basis of long standing customs. The conventions are discussed as below :

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1. Convention of Discloser :According to the convention of discloser, while making accounting record proper care should be taken to

disclose all material information and not conceal information and facts. Here emphasis is only on material information and not on immaterial information. This is done to benefit the proprietor and all those outsiders who are directly or indirectly interested in assessing the final accounts of the business unit. This is why forms of Balance Sheet and Profit and Loss accounts are prescribed in schedule VI of the companies Act 1956. If there is some material information which cannot be included in proper Balance Sheet it is shown by foot note, so had correct opinion may be made about financial position of the business unit. Thus full disclosure of all relevant and reliable facts in accounts is the necessity in order to make accounting record useful for the user. It is not new, but based on convention. Even in olden times people use to speak truth in than personal affairs, hence when accounting originated that old convention of speaking truth and in full was incorporated in accounts too, this, fare and adequate disclosure can help in accurate assessment of financial position and performance. 186

As far as the convention of full disclosure is concerned the Cooperative Societies accounting do not discloses material

information i.e. no notes to account are given in the balance sheet which is helpful in assessment by the investor etc similarly the method of depreciation, valuation of stock etc is also not disclosed. Thus they do not follow convention of disclosure. 2. Convention of Conservatism :The another convention of accounting is the convention of conservatism which is based on a rule that 'anticipate no profit but provide for all possible losses'. In other words the accountant should follow the policy of 'playing safe' According to the convention of conservatism as "Future is Uncertain" Though an estimate may be made about future events and circumstances, but no one can guess future with perfect certainty in business hence some arrangement or provision is made by meet future uncertainties. Every sincere businessman makes an estimate of futures losses and then some provision for it is made. Businessman mostly ignores the items of future profit. This tendency is termed as conservatism and it is a very natural tendency and is in existence since long hence it is a 187

convention. Saving of money by people and depositing it for using it to meet future contingencies is conservatism hence nearly all people apply this principle of conservatism. The valuation of stock or inventories at a lower of cost or net

realizable value, making provision for doubtful debts, discount on debtors are the application of this principle. Thus, conservatism refers to the principle and practice which are established by way of tradition, reluctance to change from such established principle and practice and an inclination to play safe. In short, it is a policy of caution or playing safe and had its origin as a safeguard against possible loses in a world of uncertainty. One should be careful in making provision for future losses as more or less provision necessary will create adverse effect on the business and accounting record will also not indicate true and fair position. As per the application of convention of conservatism in Cooperative Societies is concerned, as the provision for bad and doubtful debts, general reserve statutory reserve etc is maintained which indicates that the principle of conservatism i.e. anticipate no profit but provide for all possible losses is followed in accounting of Cooperative Societies.

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3. Convention of Consistency :The other convention of accounting is the convention of consistency. According to this convention, accounting practices should remain unchanged from one period to another that is whatever accounting practice has been adopted in one year, some should be continued in other future year also. Continuance of one practice in number of years indicates consistency. For example If an asset is depreciated on diminishing balance method in one year, the same method of depreciation be adopted in other years also That is consistency. It does not mean that if a method has been adopted, it can never be changed. If better method is found out on the basis of research etc it must be followed and by following a better method, consistency convention is not a hindrance, but a note with proper reasoning for making a change must be made in the accounts so that the person dealing with accounting record may know about the change. The same is with the stock, if the stock is valued at "cost or market price whichever is less" this principle should be also followed year after year. E L Kohler analyses consistency into these types : 189

(a) Horizontal Consistency :It helps to make a proper comparison of the operation of a company from one period to another. (b)Vertical Consistency :Where the same principle method, practices are adopted within the interrelated financial statements of the same date. (c) Third Dimentional Consistency :It helps to make a proper comparison of the operation between two firms with in the same industry. However, the doctrine of consistency helps in the following manner. 1. It helps to eliminate the personal bias of an accountant since he is not allowed to change any accounting method or principles according to his own opinion and desire from one year to another. 2. It helps the accountant to use his own judgment. 3. It also helps to prepare a periodical financial statement which is more dependable, reliable and comparable. In the accounting of Cooperative Societies the convention of consistency is followed as the accountant follow the same method of accounting and same policies as well as same system of accounting

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since long period of time and their system is not changed year after year thus convention of consistency is followed.

4. Convention of Materiality :The term materiality means relative importance. In other words whether a matter should be disclosed or not in the financial statement depends on its materiality i.e. whether it is material or not (immaterial) American Accounting Association (AAA) defines 'Materiality' as under "An item should be regarded that knowledge of it would influence the decision of informed investors". But E L. Kohler described it as ' The characteristic attaching to a statement of fact or item whereby it disclosure or the method of giving it expression would be likely to influence the judgment of a reasonable person. In this regard the account is vitally concerned matters. 1. Materiality of Information 2. Materiality of Account The materiality of information means that an accountant should record an item of material even though it is of small amount if the same influence the decision of the users such as proprietor, auditors of investors etc on the other 191 with the following two important

hand if some information is not relevant or important to influence the quality of financial statement it should be avoided. The materiality of accounts means that all the items in the accounts should be separately disclosed whereas immaterial items may not be disclosed separately but may be combined in a consolidated form in the accounts. For example when a statement of each debtor for sending his is prepared complete details up to 'paisa' have to be given. However, when a statement of outstanding debtor is prepared for sending it to the top management, figures may be rounded off the nearest ten or hundred. The companies act also permits ignoring of 'paisa' while preparing the financial statement similarly for tax purpose the income is rounded off to the nearest ten. The accounting principle, therefore can not be derived from are proven by laws of nature. They are rather in the category of convention or rules developed by man from experience to fulfill the essential and useful needs and purpose in establishing reliable financial and operating information system to control business activities. In this respect they are similar to principle of commercial laws and other social discipline. Thus to conclude we can say that the convention of materiality is based on the principle that accounting record should be made of all material facts and immaterial terms many either be mixed with material items and then recorded or these may be ignored. Thus, materiality is very important convention which occupies not only a key position in accounting but forms a base for accounting. The Accountants of all the countries of the world are adopting this convention.

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In the accounting of Cooperative Societies disclosure of all material information is done through the financial statements. As they also show all the relevant items through schedules by which material information is provided to the users.

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ACCOUNTING IN CO-OPERATIVE SOCIETIES AND ITS RELATION WITH ACCOUNTING STANDARD


The professional bodies in the field of accounting all over the world have already declared a conceptual framework of accounting to satisfy the varying information needs of various users by preparing a common set of financial report / statements. This is the only reason which has led to the evolution of accounting standards and it is the function of accounting standards to provide a rational structural framework so that credible financial statements of top quality may be prepared. As per Mr. T.P. Ghosh accounting standard are defined as. 'Accounting standards are the policy documents issued by the recognized expert accounting body relating to various aspects of measurement, treatment and disclosure of accounting transactions and events.' In the words of Kohlar accounting standards are as 'Medium of practices which is imposed on the accountants by professional bodies, convention and laws.' For developing accounting as the language of business it is necessary that Accounting standard should be developed . The accounting standard are not so rigid as in physical sciences. They possess a reasonable degree of flexibility and also subjectivity in responding to a specific circumstances of an enterprise. They can also be modified according to the changes in economic environment, social needs, legal requirement and technological 194

development. But at the same time, they are intended to remove irrational and diverse accounting policies and practice. The whole idea of accounting standards is centered around the harmonization of accounting policies and practices followed by businesses to standardize the diverse accounting practices followed by many aspects of accounting. The need for harmonization of accounting policies is both at national level as well as at international level . Need and Importance of Accounting Standards :The various accounting concepts, assumption and principle provide a base for accounting system and they determine the rules to be used in accounting activities but there is no compulsion or obligation regarding the use of such rules, rather their use depends upon the general public. If the Accountant wish to change the rules based on basic assumption and concepts, they can do so freely. The accounting standards are most important for removing the complicities in accounting practices and for incorporating credibility in the system. They are also significant for harmonization of financial statements, their preparation and presentation. The objective of these accounting standards based on internal as well as external compulsions is to offer a sound base foundation for accounting activities of an enterprise. The prime objective of simplification and standardization of accounting process and principles is to ensure that financial statement are prepared according to prescribed standards and also to bring harmony / uniformity in accounting policies to be adopted in by

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various enterprises in presenting the financial information so that financial reports are made simple and comparable. Scope of Accounting Standards :1. The accounting standard issued are in conformity with the provisions of the applicable laws, customs, usage and business environment of our country. 2. The accounting standards by their nature can not and don't override the local regulation/rules which govern the preparation and presentation of financial statement in our country whenever, these seems to be any conflict between the law and accounting standards, provisions of law will prevail and financial statements should be prepared in conformity with the relevant laws. Accounting standards are in the nature of law but not laws. 3. The accounting standards are intended to apply only to item which are material and become applicable from the date specified by the institute. These are applicable to all classes of enterprise unless otherwise stated. No standard has retroactive applications, unless otherwise stated. 4. Accounting standards are to address the basic matters to the extent possible. The endeavor is to confine accounting standards to essentials and not to make them so complex that they cannot be applied effectively and on nation-wide basis.

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Accounting Standards at National Level in India :Almost in each country an expert regulatory accounting body at national level has been set up to control the direction of accounting. For example :- In U.S.A. Financial Accounting Standard Boad (FASB) has been entrusted to issue accounting standards known as Statement of Financial Accounting Standard (SFAS) and it has also established Emerging Issues Task force ( EITF) to deal with matters not covered by the exiting accounting standards. In U.K. these are known as Financial Reporting Standards ( FRS) and Urgent Issue Task Force ( UTIF). In India, Institute of Chartered Accountants of India (ICAI) has set up a board which has issued accounting standard and various guidance make to deal wills matters not covered by existing accounting standards. The accounting standard issued by ICAI did not have any legal support till 1999 when Indian Companies Act was amended to make it delegatory for complying with the accounting policies framed by the Central Govt. in consultation with NACAS ( National Accounting Committee on Accounting Standard). It was also provided that the standard issued by the Institute of Chartered Accountant of India shall be applicable till the formulation of accounting standards by NACAS. A provision has also been made for "Directors Responsibility Statement" to report on the compliance of accounting standard and deviation if any along with reason for such deviation. At the same time auditors of the company are already entrusted with this responsibility as per by laws of the Institute of Chartered Accountants of India. Thus, the amendment of companies 197

act has ensured justifiable place for accounting standards in the Indian corporate reporting system SEBI ( Securities Exchange Board of India) has added a new clause in the listing agreement to provide that listed enterprises shall mandatorily comply will all the accounting standards issued by ICAI from time to time. Again, notification of Insurance Regulatory and Development Authority (IRDA) requires insurance enterprises to follow the accounting standards issued by ICAI. Apart, from the corporate bodies, the council of Institute of Chartered Accountant of India has made various accounting standards mandatory in respect of certain non-corporate entities such as partnership firm, sole proprietorship concerns/individuals, societies, trusts, AOP and H.U.F. where financial statements of such entities are statutorily required to be audited e.g. under section 44 AB of the Income Tax Act 1961. ACCOUNTING STANDARDS BOARD ( A.S.B.) :The Institute of Chartered Accountants of India ( ICAI) constituted the accounting standard Board ( ASB) on 21st April 1977 with a view to harmonies the diverse accounting policies and practices in use in India and also the develop in the field of accounting at international level. It is one of the members of International Accounting Standard Committee. This board is also committed to develop and to integrate the standards issued by IASC to the extent possible in the light of conditions and practices prevailing in India. 198

The composition of Accounting Standard Board based with a view to ensure participation of all interest group in the process of formulation of standards. This interest group include industry, various departments of government and regulatory authority financial institution and academic and professional bodies. Industry, is represented by their apex level association e.g. Associated Chambers of Commerce and Industry of India, Federation of Indian Chambers of Commerce and Industry and Confederation of Indian Industries. As regards government department and regulatory authorities, Reserve Bank of India, Department of Company Affairs, Central Board of Direct Taxes, Comptroller and Auditor General of India, Controller of General Accounts, Securities and Exchange Board of Indian and Central Board of Excise and Customs are represented on the ASB. Beside these representatives of academic and professional institutions such as universities, IIMS, ICWA, ICSI are also represented on the ISB. Members of the Central Council of ICAI are also on the ASB. Functions of Accounting Standard Board :1. At the initial state the main function of the Accounting Standard Board is to develop the accounting standards in India and also to ensure their proper applicability. 2. The Accounting Standard Board ( ASB) has formulated the standards, for practical application of those principles which were experienced for performing accounting activities on the basis of basic concept.

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3. The Accounting Standard Board ( ASB) also explains the term used in financial statement along with the formulation of standard and there it is helpful. 4. The function of the Accounting Standard Board ( ASB) is not only to decide and to incorporate accounting standards but also to revise and to modify from time to time the standard issued as per the changed situation. 5. The another function of the Accounting standard Board ( ASB) is to determine the extent to which these changes are to be noted in financial statement and auditor's report. Such statement may be provided by business enterprises separately along with financial accounts in the form of short notes or in the form of classification. Formulation of Accounting Standards :Broadly the following procedure is adopted in formulating Accounting Standards : (i) (ii) (iii) The Accounting Standard Board ( ASB) determines to broad areas in which accounting standard need to be formulated. The Accounting Standard Board is assisted by study groups constituted to consider the specific subject. The Accounting Standard Board holds a dialogue with the representatives their views. (iv) After taking into consideration their views the draft of the standard is issued as exposure draft for seeking the comments 200 of the Government, Public Sectors Undertaking, Industry and other organizations for ascertaining

from members of the Institute ( ICAI) and public at large. The exposure draft includes the following points :(a) A statement of concepts and fundamental accounting principles. (b) Definition of the terms used in the standards . (c) The manner in which the accounting standards have been applied for formulating the standard. (d) Presentation and disclosures requirement in complying with standard. (e) The class of enterprise to which standard will apply. (f) Date from which the standard will be effective. (v) Comments received on the exposure draft are considered by the Accounting Standard Board and a final draft is prepared by the ASB and submitted to the council of the institute. (vi) Council of the Institute consider the final draft of the proposed standard and if found necessary modifies the same in consultation with the Accounting Standard Board. The accounting standard on the relevant subject is then issued under the authority of the council. Applicability of Accounting Standards :The Council of the Institute of Chartered Accountants of India at its 236th meeting held on September 2003 decided the following scheme for the applicability of accounting standards which comes into effect in respect of accounting periods commencing on or after 1.4.2004. For the purpose of applicability of accounting standards enterprises are classified into three categories as level I, level II and level 201

III. Level II and level III are considered as small and medium size enterprises ( SMEs). The criteria for classification of enterprises are as follows : Level I Enterprises :The enterprises which fall in any one or more of the following categories at any time during the accounting period are classified as Level I enterprises (i) Enterprises whose equity or debt securities are listed whether in India or outside India. (ii) Enterprises which are in the process of listing their equity or debt securities as evidenced by the board of directors resolution in this regard. (iii) (iv) (v) (vi) Banks including Cooperative Banks. Financial Institution. Enterprise carrying on insurance business. All commercial, industrial and business reporting enterprises, whose turnover for the immediately preceding accounting period on the basis of audited financial statements exceeds Rs. 50 crore. Turnover does not include 'other income'. (vii) All commercial, industrial and business reporting enterprises having borrowing, including public deposits in excess of Rs. 10 crore at any time during the accounting period. (viii) Holding and subsidiary enterprises of any one of the above at any time during the accounting period.

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Level II Enterprises :The enterprises which are not Level I enterprises but fall in any one or more of the following categories are classified as Level II enterprises. (i) period on the but does not income. (ii) crore but not period. (iii) Holding and subsidiary enterprises of any one of the above at any time during the accounting period. Level III Enterprises :Enterprises which are not covered under level I and level II are considered as level III enterprise Level I enterprise are required to comply fully with all the accounting standard. No relaxation is given to level II and level III enterprises in respect of recognition and measurement principles. Relaxation are provided with regard to disclosure requirements. Accordingly level II and Level III enterprises are fully exempted from certain accounting standards which primarily lay down disclosure requirement. In respect of certain other accounting standards, which lay 203 All commercial, industrial and business reporting enterprises having borrowing, including public deposits in excess of Rs. 1 exceed Rs. 10 crore at any time during the accounting All commercial, industrial and business reporting accounting basis of audited financial statement exceed Rs. 40 lacs exceeds Rs. 50 crore. Turnover does not include other enterprises whose turnover for the immediately preceding

down recognition, measurement and disclosure requirements, relaxation from certain disclosure requirements are given. Thus, recognizing the need of harmonize the diverse accounting policies and practice presently in use in India, and keeping in view the international development in the field of accounting the Council of the Institute of Chartered Accountant of India constituted the accounting standards in 1977. A brief discussion of all these standards has been given as below and how for they are followed in accounting of Cooperative Societies it is also explained. Accounting Standards and Accounting in Cooperative Societies :The various accounting standards are explained as below and how for they are followed in the accounting of Cooperative Societies it is also explained. 1. AS - 1 Disclosure of Accounting Policies :The AS-1 deals with the disclosure of accounting policies and it is effective from 1-4-1991 and mandatory in nature. All the significant accounting policies adopted in the preparation and presentation of financial statements should be disclosed. The disclosure of the significant accounting policies as such should form part of the financial statement and the significant accounting policies should normally be disclosed in one place. Any change in the accounting policy which has a material effect in the current period or which is reasonably expected to have a material effect in later period should be disclosed. In case of a change in accounting policies which has a material effect in the 204

current period the amount by which any item in the financial statement is affected by such change should also be disclosed to the extent ascertainable. Where such amount is not ascertainable, wholly or in part the fact should be indicated. The purpose of this standard is to promote a better understanding of financial statement by establishing the disclosures of significant accounting policies in the financial statement and the manner doing so. After the deep analysis of the financial statement of the Cooperative Societies it can be analyzed that the ( AS-1) Accounting Standard of Accounting Policies is not disclosed while doing accounting in the Cooperative Societies. The accountant do not intimate the change occurred in the societies . Along with that no notes to account is given. 2. AS -2 Valuation of Inventories :This accounting standard is revised and effective from 1-4-1999 and mandatory in nature. Inventories should be valued at the lower of cost and not realizable value. The cost of inventories should be assigned by using the first in first out ( FIFO), or weighted average cost formula. The cost of inventories should comprise all the costs of purchase , cost of conversion and other cost is carried in bringing inventories to their present condition. The financial statements should disclose. (a) The accounting policies adopted in measuring inventories, including the cost formula used and, (b) The total carrying amount of inventories and its classification 205 location and

appropriate to the enterprise. The accounting in Cooperative Societies do not discloses the method of valuation of inventories used through it disclosure the various classification of inventories and its appropriate classification of the enterprise. 3. AS-3 Cash Flow Statement :The AS-3 cash flow statement ( revised 1997) issued by the council of ICAI comes into effect in respect of accounting periods commencing on or after 1-4-1997. This standard supersedes, AS-3 "changes in financial position" issued in June 1981. This standard is mandatory in nature in respect of accounting periods commencing on or after 1-4-2004 for the enterprise which falls any one or more of the categories of level I enterprise at any time during the accounting period. The enterprise which do not fall in category or level I are not required to follow this standard. An enterprise should prepare a cash flow statement ( if required) and should present it with the financial statements. An enterprise may sure the cash flow by using (A) Direct Method :payments are disclosed (B) Indirect Method :- Whereby not profit or loss is adjusted for the effect of transacting of none-cash nature. As far as AS-3 is concerned it is not followed in the accounting of Cooperative Societies because they do not show the cash flow statement along with the financial statement. Where gross cash receipt and gross cash

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4. AS-4 Contingencies and Events Occurring after the Balance Sheet Date :This Accounting Standard is effective from 1.4.1995 and mandatory in nature. The assets and liabilities should be adjusted for events occurring after the balance sheet date that provide additional evidence to assist the estimation of amounts relating to conditions existing at the balance sheet date. Disclosure should be made in the report of the approving authority of those events occurring after the Balance Sheet date that represent material changes and commitments affecting the financial position of the enterprise. If disclosure of contingencies is required the following information should be provided. (a) the nature of contingency (b) the uncertainties which may effect the future outcome. (c) an estimate of the financial effect or a statement that such an effect cannot be made. If disclosure of events occurring after the Balance Sheet date in the report of the approving authority is required the following information should be provided (a) the nature of event (b) an estimate of the financial effect or a statement that such an estimate cannot be made. Those events which occurred after the date of balance sheet are not shown in the financial statement of U.P. Cooperative Societies which means that it does not follow the guidelines of AS-4. 5. AS-5 Net Profit or Loss for the period Prior, period items and changes in Accounting Policies :207

This standard is effective from 1-4-1996 and mandatory in nature. According to this standard the net profit or loss for the period comprises of the following components, each of which should be disclosed on the face of the statement of profit or loss. (a) Profit or loss from ordinary activities (b) Profit or loss from extraordinary activities Extraordinary items should be disclosed in the statement of profit and loss as a part of net profit or loss for the period. The nature and amount of each extraordinary item should be separately disclosed in the statement of profit and loss in the manner that its impact on current profit or loss can be perceived. When item of income and expense within profit and loss from ordinary activities are of such size, nature or incidence that their disclosure is relevant to explain the performance of the enterprise for the period, the nature and amount of such items should be disclosed separately. The nature and amount of prior period items should be separately disclosed in the statement of profit and loss in a manner that their impact on current profit or loss can be perceived. On the other hand a change in accounting policy should be made only if the adoption of a different accounting policy is required by statute or compliance within accounting standard or if it is considered that the change would result in more appropriate presentation of financial statements of the enterprise. Any change in the accounting policy which has a material effect should be disclosed. The impact of, and the

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adjustments resulting from, such change if material should be shown in the financial statement of the period in which such change is made. As far as accounting in Cooperative Societies is concerned for the preparation of trading and profit and loss account for the ordinary course of the business operation it shows the ordinary profit or loss but does not discloses extraordinary items if any through the financial statement. 6. AS-6 Depreciation Accounting :This standard is revised and effective from 1-4-1995 and mandatory in nature. The depreciable amount of a depreciable asset should be allocated on systematic basis to each accounting period during the useful life of the asset. The depreciation method should be applied consistently from period to period. A change in one method of providing depreciation to another should be made only if the adoption of the new method is required by statute or for compliance with an accounting standard or if it is considered that the change would result in a more appropriate preparation or presentation of the financial statement of the enterprise. When such a change in the method of depreciation is made, depreciation should be re-calculated in accordance with the new method from the date of the asset coming into use. The deficiency or surplus arising from retrospective re computation of depreciation in accordance with the new method should be adjusted in the accounts in the year in which the method of depreciation is changed. In case change in method, there is deficiency in depreciation in respect of past years, the deficiency should be 209

charged in the statement of profit and loss. In case the change in method, there is surplus the surplus should be credited to the statement of profit and loss. Such a change in accounting policy and its effect should be quantified and disclosed. The useful life of a depreciable asset should be estimated after considering the following factors (i) Expected physical wear and tear (ii) Obsolescence (iii) Legal and other limits on the use of the asset . The following information should be disclosed in the financial statement. 1. cost of each class of depreciable assets. 2. 3. Total depreciation for the period for each class of asset. The related accumulated depreciation. The historical cost or other amount subsituted for historical

The following information should also be disclosed in the financial statements along with the disclosure of the other accounting policies. (i) (ii) Depreciation methods used. Depreciation rates or the useful life of the assets, if they are different from the principle rates specified in the statute governing enterprise. The accountant do not discloses the historical cost nor the related accumulated depreciation apart from that it also do not discloses the method of depreciation neither the rate of depreciation applicable nor any other material information.

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7. AS-7 Accounting for Construction Contracts :This standard is effective from 1-4-1991 and is mandatory in nature for non corporate bodies and cases covered under section 44 AB of the Income Tax Act 1961 w.e.f 1-4-1993. The percentage of completion method can be used of the outcome of the contract can be reliably, estimated. In the case of fixed price contracts this degree of reliability would be provided if the following conditions are satisfied. (i) (ii) total contract revenue to be received can be reliably estimated. both the cost of complete the contract and the stage of contract performance completed at the reporting data can be reasonably estimated, and (iii) The cost attributable to the contract can with prior estimates. Profit in the case of fixed price contracts normally should not be recognized unless the work on a contact has progressed to a reasonable extent. In the case of cost plus contracts this degree of reliability would be provided only if both the following conditions are satisfied (i) (ii) costs attributable to the contract case be clearly identified and costs other than those that are specifically reimbursable under the contact can be reliably estimated. While recognizing the profit under percentage of completion method an appropriate allowance for future enforceable factor should be made on either a specific or a percentage basis. The cost included in the amount at which 211 be clearly identified so that the actual experience can be compared

construction work is stated should comprise those cost hat relate directly to a specific contract and those that are attributed to the contract activity in general and can be allocated to specific contract. A foreseeable loss on the entire contract should be provided for the financial statement irrespective of the amount of work done and the method of accounting followed. If both the percentage of completion method and the completed method are simultaneously used by the contractor the amount of contract work described in (i) above should be analyzed to disclose separately the amount attributed to contracts accounted for under each method. The AS-7 (Accounting for Construction Contracts) is not applicable in case of Uttar Pradesh Cooperative Societies thus this accounting standard is not applicable in the present subject matter. 8. AS-8 Accounting for Research and Development :It is effective from 1-41991 and mandatory in nature for non-corporate bodies and cases covered under section 44 AB of the Income Tax Act 1961 w.e.f. 1-41993. Research and development cost should include (i) Salaries, wages and other related costs of personnel engaged in research and development. (ii) Cost of material and services consumed in research / development. (iii) Depreciation of building equipment and facilities which have alternative economic use to the extent that they are used for research and development.

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(iv) An appropriate amortization of the cost of building, equipment and facilities which have no alternative economic use, to the extent that they are used for research and development. (v) Overhead costs related to research and development. (vi) Payment to outside bodies for research and development projects related to the enterprise and (vii) Other cost related to research and development such as amortization of patents and license. The amount of research and development cost should be charged as an expense of the period in which they are incurred except where such costs may be deferred. Wherever research and development cost are deferred the appropriate legal requirements should also be taken into account. If research and development cost of a project are deferred they should be allocated on a systematic basis to future accounting periods by reference either to the sale or use of the product or process or to the time period over which the product or process is expected to be sold or used. The deferred research and development cost of a project should be reviewed at the end of each accounting period. When the criteria for deferred continue to be met but he amount of unamortized balance of the deferred research and development cost and other relevant cost exceeds the expected future revenue benefit related there to, such expenses should be charged as an expense immediately. Research and development cost once written off should not be reinstated even through the uncertainties which has led to their being written off or longer exist. 213

The AS-8 Accounting for Research and Development is not applicable in case of Uttar Pradesh Corporation Societies as it only a trading concern. 9. AS-9 Revenue Recognition :It is effective from 1-4-1991 and mandatory in nature for non-corporate bodies and cases covered under section 44 AB of the Income Tax Act 1961 w.e.f 1-4-1993. In a transaction involving of the rendering of services, performance should be measured either under the completed service contract method or under the proportionate completion method, whichever relates the revenue to the work accomplished. Revenue arising from the use by other of enterprise resources yielding interest royalties and dividends should only be recognized when no significant uncertainty as to measurability or collectability exists. Interest should be recognized on a time proportion basis taking into account the amount outstanding and the rate appraisal. Royalties on an accrual basis in accordance with the terms of the relevant agreement, dividends from investments in shares when the owner's right to receive payment is established. In a transaction involving the sale of goods, performance should be regarded as being achieved when the seller of goods has transferred to the buyer the property in the goods for a price or all significant risks and rewards of ownership have been transferred to the buyer and the seller retains no effective control of the goods transferred to a degree usually associated with ownership and no

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significant uncertainty exists regarding

the amount of the

consideration that will be derived from the sale of goods. This Accounting Standard AS - 9 for Revenue Recognition is followed transferred and sales in needs. 10. AS- 10 Accounting for Fixed Assets :It is effective from 1-4-1991 and applicable to non-corporate bodies and cases covered under section 44 AB of the Income Tax Act 1961w.e.f. 1-4-1993. According to this standards the cost includes purchase price, installation cost and finance cost for the period upto the date the assets become ready for use. Self constructed assets, shall be accounted for at cost. In case of exchange, the market value of new asset or the net book value of asset given up stall be taken. Goodwill should be accounted only when paid for. As the Cooperative Societies do not disclose any accounting policies regarding accounting for fixed assets in there financial statement thus it is not possible to ascertain the accounting for fixed assets as stated in the accounting standard ( AS10) 11. AS-11 Accounting for the effects of changes in Foreign It is effective from 1-4-1995 and mandatory in nature. According to this Foreign currency transaction shall be translated at the exchange rate on the date of the transactions except in respect of 215 exchange Rate :in U.P. Cooperative Societies because they record transaction immediately when the goods are

inter related transaction. Monetary items denominated in Foreign currency should be reported using closing rate. Non-monetary items other than denominated in foreign currency which are carried in historical cost should be reported at exchange rate at the date of transaction. Non monetary item other than fixed asset denominated in foreign currencies which are carried in items of fair value or other valuation should be reported using exchange rate that existed when the values were determined. Exchange differences should be recognized as income or expense in the period in which they arise except in the case of acquisition of fixed assets. Exchange difference arising on replacement of liabilities incurred for the purpose of acquiring the fixed assets should be adjusted to its carrying amount. Exchange differences in case of forward contracts should be recognized as income or expense over the life of the contract except in respect of liabilities incurred for acquiring fixed assets where such differences should be adjusted in the carrying amount of respective assets. In case of fixed assets depreciation with the provided at the adjusted rates. The enterprise should disclose the amount of exchange difference included in the net profit or loss, the amount of exchange difference adjusted in the carrying amount of fixed assets and the amount of exchange difference in respect of forward exchange contract to be recognized in the profit or loss for one more subsequent accounting periods. Since the study is based on the Accounting system of Cooperative Societies in Uttar Pradesh thus there is no requirement for this standard of exchange rates. 216

12. AS-12 Accounting for Government Grants :It is effective from 1-4-1994 and mandatory in nature. Government grants should not be recognised until there is reasonable reason that (1) the enterprise will comply with the conditions attached to them and (ii) the grants will be recovered. Methods of accounting for grants related to specific fixed assets are : Deducting the grant from the gross value of the assets, or treating grants related to depreciable assets as deferred income and grants related to non depreciable assets as capital reserve. Grants in the form of non-monetary assets given at a concessional rate should be accounted for at their acquisition cost and those given free of cost should be recorded at nominal value. Grants receivable as compensation for expenses or losses incurred should be recognized and disclosed in Profit and Loss account as an extraordinary item in accordance with AS-5 contingency related to a government grant arising after the grant has been recognized should be treated in accordance with AS-4 Grant that became refundable should be accounted for as an extra ordinary item in accordance with AS-5. Adequate disclosure is required for the accounting policy adopted the nature and extent of government grant granted and recognized in the financial statements. The final accounts of the cooperative societies do not disclose any information regarding the government grants. Thus it is impossible to study this particular standard of government grants. 13. AS-13 Accounting for Inventories:217

It is effective from 1-4-1995 and mandatory in nature. According to this current investment and long term investment are to be disclosed separately along with further classification. Significant restriction on right on ownership, reliability and remittance thereof are to be disclosed separately. Current Investment are to be disclosed at lower of cost and fair market value. Adequate disclosure is required for the accounting policy adopted, classification of investment and income from investments, profit/loss on disposal and charges on such investment. Long term investment should be disclosed at cost. The current investment and long term investment is shown separately but the financial statement do not discloses as well as it is not mentioned in the financial statement that which method is followed in disclosure of long term investment. 14. AS-14 Accounting for Amalgamation :It is effective from 1-4-1995 and mandatory in nature. According to this amalgamation is of the following two types, in the nature of merger and in the nature purchase. Amalgamation in the nature of merger is to be accounted for under pooling of interest method. Amalgamation in the nature of purchase should be accounted for under purchase method. Under pooling of interest method all the assets and liabilities of the transferor company are recorded at the existing carrying amount in the financial statement of the transferee company. Uniform set of accounting policies should be reported. Under purchase method assets and liabilities of the transferor company should be recorded at existing 218

carrying amount of individual identifiable assts and liabilities on basis of fair market value at date of amalgamation. The excess or shortage of consideration over value of net assets be treated as good will or capital reserve as the case may be. The AS-14 accounting for amalgamation, it is impossible to study this particular standard as the final accounts do not disclose any information regarding this particular standard. 15. AS-15 Accounting for Retirement Benefits in the Financial Statement of Employers :It is effective from 1-4-1995 and mandatory in nature. According to this, the method by which retirement benefit costs for the period have been determined should be disclosed in the financial statements, where the costs related to gratuity and other defined benefit schemes are based on an actuarial valuation the financial statement should also disclose whether the actuarial valuation was made at the end of the period or at an earlier date where the actuarial valuation is done at an earlier date, the date of the actuarial valuation should be specified and the method by which the accrual for the period has been determined should also be described in brief if the same is not based on the report of actuary. The AS-15 is applicable and followed accordingly in the financial statements of the Cooperative Societies thus this standard is followed : 16. AS-16 Borrowing Costs :219

It is effective from 1-4-2000 and mandatory in nature. According to this Borrowing Costs are defined as interest and other cost incurred by an enterprise in connection with borrowing. Qualifying assets is defined as an asset that has necessarily taken a substantial period of time to get ready for its intended use or sale. The financial statement should disclose the accounting policy adopted for borrowing costs and the amount in of borrowing cost capitalized during the period. Borrowing cost directly attributable to the acquisition, construction or production of any qualifying assets should capitalized. In the Cooperative Societies the amount of borrowing cost is not disclosed and out of borrowing, cost of construction and production of any qualifying asset is been made 17. AS-17 Segment Reporting :This standard is effective in respect of accounting periods commencing on or after 1-4-2001 and is madatory in nature in respect of accounting periods commencing on or after 14-2004 for the enterprises which falls as any one or more of the category of Level I. The enterprise which do not fall in any of the above categories are not required to apply this standard. According to this, an enterprise is required to report its financial performance according to segments. Segments can be identified as business segment and geographical segment. Business segment is component of an enterprise engaged in providing industrial product or service or a group of related product or services and that is subject to risk and reward that are different from those of other business 220

segments. Geographical segment is a distinguishable component of an enterprise that is engaged in proving products or services within a particulars economic environment and that is subject to risk and return that are different from those of components operating in other economic environment. An enterprise should disclose segment assets, carrying amount of segment liabilities, depreciation on segment assets non-cash charges in respect of segment assets. Enterprise should present reconciliation between information disclosed for reportable segments and the aggregate information in the enterprise financial statements. In the Cooperative Societies financial statement the segment reporting is done as it prepare its financial statement district wise, zone wise, and service. They also show the investment in various field in their financial statement. 18. AS-18 Related Party Disclosures : This standard comes into effect in respect of accounting period commencing on or after 1-4-2001 and is mandatory in nature in respect of accounting periods commencing on or after 1-4-2004 for the enterprise which fall in any one or more of the category in level I at any time during the accounting period. Those enterprise which do not fall in level I is not required to apply this standard. The standard applies to related party relationship only. Parties are considered to be related of at any time during the reporting period one party has the ability to control other party or exercise 221

significant influence over other party in making financial or operating decisions. Name and nature of the related party where control exist should be disclosed irrespective of whether or not there have been transactions between the related parties, during the existence of a related party relationship the reporting enterprises should disclose the following 1. The name of the transacting related party 2. A description of the relationship between parties 3. A description of the nature of transactions. 4. Volume of the transaction either as an amount or as an appropriate proportion. 5. Any other elements of the related party transaction necessary for an understanding of the financial statement. 6. The amount or appropriate proportion of outstanding items pertaining to related parties at the Balance Sheet date and provision for doubtful debts due from such parties at that date and 7. Amounts written off or written back in the period in respect of debts due from or to related parties. The AS-18 Related Party Disclosure, is not applicable in the accounting of Cooperative Societies because they are independent business units. 19. AS-19 Leases :The Accounting standard AS-19 issued by the council of ICAI comes into effect in respect of all assets leased during the accounting period commencing on or after 1-4-2001 and is mandatory 222

in nature from that date,

In respect of accounting periods

commencing on or after 1-4-2004 an enterprise which do not fall in any of the categories of level I, need not disclose the information required by various provisions of this standard but enterprise which fall in any one or more of the categories of level I, the standard is applicable in its entirely. A lease is an agreement whereby to lessee conveys to the lesser in return for a payment or series of payments the right to use an asset for an agreed period of time. Leases are of two types : (i) Financial lease, (ii) Operating lease. At the inception of financial lease the lessee should recognize the lease as an asset and a liability. Such recognition should be at an amount equal to fair values of the leased asset at the inception of the lease. However, if the fair value of the leased asset exceeds the present value of the minimum lease payment from the stand point of the lessee the amount recorded as an asset and the liability should be the present value of the minimum lease payment from the stand point of the lessee. In calculating the present value of the minimum lease payment the discount rate is the interest rate implicit in the lease, if this is practical to determine if not the lessee's incremental borrowing rate should be used. At the inception of a finance lease the lesser should recognize asset given under a finance lease in its balance sheet as a receivable at an amount equal in the net investment in the lease. At the inception of operating lease the lessee should recognize lease payment as an expense in the statement of profit and loss on a straight line basis over the lease term 223

unless another systematic basis is more representative of the time pattern of the user's benefit. The lesser should present an asset given under operating lease in its balance sheet under fixed assets, Lease income from operating leases should be recognized in the statement of profit and loss on a straight line basis over the lease term unless another systematic basis it more representative of the time pattern in which benefit derived from the use of the leased asset is diminished. If sale and lease back transaction result in a financial lease, any excess or deficiency of sales proceeds over the carrying amount should not be immediately recognized as income or loss in the financial statement of a seller lessee. Instead it should be deferred and amortized over the lease term in proportion to the depreciation of the leased asset. If a sale and lease back transaction results in an operating lease and it is clear that the transaction is established at fair value, any profit or loss should be recognized immediately except that if the loss is compensated by future lease payment at below market price it should be deferred and amortized in proportion to the lease payment over the period for which the asset is expected to be used. If the sale price is above fair value, the excess over fair value, should be deferred and amortized over the period for which the asset is expected to be used. The AS-19 related to leases is applicable in case of Cooperative Societies and is accordingly followed because lease income is being disclosed, every year in profit and loss account. 20. AS-20 Earning Per Share :-

224

This standard comes into effect in respect of accounting period on or after 2001 and is mandatory in nature in respect of enterprise whose equity share or potential equity shares are listed in recognized stock exchange in India. An enterprise which has neither equity nor potential equity shares which are listed but discloses earning per share should disclosed earning per share with this standard. However in respect of accounting period falling or commencing on or after 1-4-2004 any enterprise which does not fall in category I need not to disclose diluted earning per share. Equity share is defined as a share other than a preference share. Preference share is defined as a share carrying preferential right to dividends and repayment of to equity capital. A potential equity share is defined as a financial instrument or other contract that entitles or many entitle, its holders shares. Basic earning per share should be calculated by dividing the net profit or loss for the period attributable to equity shareholder by the weighted average number of equity shares outstanding during the period. For the purpose of calculating diluted earning per share the net profit or loss for the period attributable to equity shareholder and weighted average number of share outstanding during the period, should be adjusted for the effects of all dilutive potential equity share. Potential equity shares should be treated as dilutive when and only when, their conversion to equity share would decrease net profit per share from continuing ordinary operations. If the number of equity or potential equity shares outstanding increases as a result of bonus issue or share split or decrease as a result of a reserve share split 225

(Consolidation of share) the calculation of basic and diluted earning per share should be adjusted for all the periods presented. If there changes occur after the balance sheet date but before the date on which the financial statements are approved by the board of directors, the per share calculation for those financial statements and any prior period financial statements presented should be based on the new number of shares. An enterprise should present basic and diluted earnings per share on the face of the statement of profit or loss for each class of equity shares that has a different right to share the net profit for the period. An enterprise should present basic and diluted earning per share with equal prominence for all periods presented. Basic and diluted EPS should be presented even if the amount disclosed are negative i.e. a loss per share. following should also be disclosed (a) The amount used as numerators in calculated basic and diluted earnings per share and a reconciliation of those amount to the net profit or loss for the period. (b) The weighted average number of equity shares used as a denominators in calculating basic of diluted earning per share, and a reconciliation of these denominator to each other. (c) Nominal value of share, along with earning per share figures. AS-20 Earning per share is applicable and they show face value of share or the nominal value of shares but they do not disclose diluted earning per share, earning per share nor methods of valuation of earning per share. 21. AS-21 Consolidated financial Statements :226

It is effective from 1-4-2001, and is mandatory in nature in respect of all enterprise which present consolidated financial statement. In preparing consolidated financial statements the financial statements of the parent and its subsidiaries should be combined liabilities income by adding together like items of assets, and expenses. In order that the consolidated

financial statements present financial information about the group or that of a single enterprise, the following steps should be taken (a) The cost to the parent of its investment in each subsidiary and the parent's portion of equity of each subsidiary as the date on which investment in each subsidiary is made should be eliminated. (b) any excess of the cost to the parent of its investment in a subsidiary over the parent's portion of equity of the subsidiary, at the date on which investment in the subsidiary is made, should be described as goodwill to be recognized as an asset in the consolidated financial statement. (c) When the cost of the parent of its investment in a subsidiary is less than the parent's portion of equity of the subsidiary at the date on which investment in the subsidiary is made, the difference should be treated as a capital reserve in the consolidated financial statement. (d) Minority interest in the net income of consolidated subsidiaries for the reporting period should be identified and adjusted against the income of the group in order to arrive at the net income attributable to the owners of the parent and, (e) Minority interest in the net assets of consolidated subsidiaries should be identified and presented in the consolidated balance sheet 227

separately from the liabilities and the equity of the parent's shareholders. The AS 21 of consolidated financial statement is not applicable in the Cooperative Societies because they have no subsidiary societies the small societies work under the cooperatives. 22. AS-22 Accounting for Taxes on Income :Standard is mandatory in case of (a) Listed companies and companies that are in process of issuing shares etc that will be listed on a recognized stock exchange in India. (b) All enterprises of a group, if the parent presents consolidated financial statement and the AS is mandatory in nature in respect of any of the enterprises of the group in terms of (a) above (c) All companies not covered by (a) above w.e.f. 1-4-2002. (d) All enterprises w.e.f. 1.4.2003. Accounting income is defined as the net profit or loss for a period , as reported in the statement of profit and loss before, deducting income tax expenses or adding income tax saving. Taxable income means the amount of income or loss for a period, determined in accordance with the tax laws, based upon which income tax payable or recoverable of profit and loss account. Current tax is defined as the amount of income tax determined to be payable or recoverable in respect of the taxable income or loss for a period. Deferred tax is the tax effect of timing differences. Timing 228 is determined. Tax expense is defined as the aggregate of current tax and deferred tax charged or credited to the statement

difference is differences between taxable income and accounting income for a period. Permanent differences are the differences between taxable income and accounting income for period that originate in one period and do not reverse subsequently. Tax expense for the period comprising current tax and deferred tax, should be included in the determination of the net profit or loss for the period. (a) Deferred tax assets and liabilities should be distinguished from assets and liabilities representing current tax for the period. Deferred tax assets and liabilities should be disclosed under a separate heading in the balance sheet of the enterprise separately from current assets and current liabilities. (b) The break up of deferred tax assets and tax liabilities into major components of the respective balance should be disclosed in the notes of accounts. (c) The nature of the evidence supporting the recognition of deferred tax assets should be disclosed. If an enterprise have unabsorbed depreciation or carry forward of losses under tax laws. In Cooperative Societies the AS-22, this standard is not applicable in societies because they are not listed in Stock Exchange of India and their shares are also not sold through the Stock Exchange of India, though the service tax and other taxes are shown in profit and loss account. 23. AS-23 Accounting For Investment in Associates in

Consolidated financial statements :229

It is effective from 1-4-2002 An associate is defined as an enterprise in which the investor has significant influence and which is neither a subsidiary nor a joint ventures of the investor significant influence is the power to participate in the financial and /or operating policy decisions of the investee but not control over those policies. Equity method is a method of accounting whereby the investment is initially recorded at cost, indentifying any goodwill / capital reserve arising at the time of acquisition. The carrying amount of the investment is adjusted thereafter for the post acquisition change in the investor's share of net assets of the investee. The consolidated statement of profit and loss reflects the investor's share of the results of operating of the investee. Accounting for investments in an associate should be done according to equity method. The enterprise should disclose reason for departure from equity method. Disclosure requirements 1. List and description of associates. 2. Proportion of ownership interest and proportion of voting power held, if different from ownership interest. 3. Investment in associates accounted for using the equity method should be classified as long term investment and disclosed separately in the consolidated balance sheet. 4. The investment share of profit or losses of investment referred to above should be disclosed separately in the consolidated statement of profit or loss. 5. In case an associate uses accounting policies other than those adopted for the consolidated financial statement for like transaction 230

and events in similar circumstances and it is not practicable to make appropriate adjustments to the associate's financial statement, the fact should be disclosed along with a brief description of the difference in the accounting policies. Since the Cooperative Societies do not prepare consolidated balance sheet they are not required to show share of investments in various concerns thus this standard is not applicable. 24. AS-24 Discontinuing Operations :This standard comes into effect in respect of accounting periods commencing on or after 1-4-2004 and is mandatory in nature for enterprises which fall in any one or more of the categories under level I, at any time during the accounting period. However earlier application is encouraged. The enterprises which do not fall in any of the categories of level I are not required to apply this standard. This statement applies to all discontinuing operations of an enterprise with respect to a discontinuing operation, the initial disclosure event is the occurrence of one of the following whichever occurs earlier : the enterprise has established into a binding sale agreement for substantially all of the assets attributable to the discontinuing operation or the enterprise's board of directors or similar governing body has both :1. Approved a detailed formal plan for discontinuance 2. Made an announcement of plan An enterprise should includes the following information relating to discontinuing operation in its 231

financial statement beginning with the financial statements for the period in which the initial disclosure event occurs, a description of discontinuing operation, the business or geographical segments, in which it is reported as per AS-17, segment reporting the date and nature of initial disclosure event, the date and the period in which the discontinuance is expect to be completed if known or determinable the carrying amount as of the Balance Sheet date of its total assets to be disposed of and the total liabilities to be settled the amount of revenue and expenses in respect of the ordinary activities attributable to the discontinuing operation during the current financial reporting period, the amount of pre-tax profit or loss from ordinary activities attributable to the discontinuing operation during the current financial reporting period and the income tax expenses related there and the amount of net cash flows attributable to the operating investing and financial activities of the discontinuing operation during the current financial reporting period. When an enterprise disposes off assets and settles liabilities attributable to a discontinuing operation or enters into binding agreement for the sale of such assets or the settlement of such liabilities it should include in its financial statement the following information when the events occur. For any gain or loss that is recognized on the disposal of assets or settlement of liabilities attributable to the discontinuing operation. (i) The amount of pre-tax gain or loss and, (ii) Income Tax expense relating to gain or loss. 232

Apart from that an enterprise should include in its financial statement, for periods subsequent to the one in which the initial disclosure events occurs, a description of any significant changes in the amount of timing of cash flows relating to the assets to be disposed or liabilities to be settled and the event causing those changes. The disclosure as regards to discontinuance should continue in financial statement for period up to and including the period in which the discontinuance is completed. The AS-24 Discontinuing operation is followed when business unit is discontinued but in case of Cooperative Societies no business units are discontinued during the last five years. 25. AS - 25 Interim Financial Reporting :This standard comes in respect of accounting periods commencing on or after 1-4-2002. If an enterprise is required or elects to prepare and present an interim financial report, it should comply with the statement. In includes (a) Interim Report - It is a financial report containing financial statements or a set of condensed financial statement for an interim period (b) Interim period - It is a financial reporting period shorter than a full financial year. An interim financial report components. Condensed Balance Sheet, Condensed Statement of Profit and Loss, Condensed Cash Flow Statement and selected explanatory notes. If an 233 should include at a minimum the following

enterprise prepare and presents a complete set of financial statements in its interim financial report the form and contents of those statement should confirm to the requirements as applicable to the annual complete set of financial statements. If an enterprise prepares and presents a set of consolidated financial statements in its interim report those condensed statement should include at a minimum each of the heading and sub-heading that was included in its most recent annual financial statement and the selected explanatory notes as required by this statement. Additional line items or notes should be included if their omission would make the condensed interim financial statements misleading. If an enterprise present basic and diluted earning per share in its annual financial statements in accordance with its accounting standard AS-20. Earning per share, basic and diluted earning per share, should be presented in accordance with AS 20 on the face of the statement of profit and loss, complete or condensed for an interim report. An enterprise should include the following information as a minimum, in the notes to its interim financial statements, if material and if not disclosed elsewhere in the interim financial report. A statement that the same accounting policies are followed in the interim financial statements are those followed in the most recent annual financial statements or, if those policies have been changed, a description of the nature and effect of the change, explanatory comments about the seasonality of interim operation, the nature and amount of items affecting assets, liabilities, equity, net income or cash flows that are unusual because 234

of that nature size or incidences, the nature and amount of changes in estimate of amount reported in prior interim periods of current financial year or changes in estimates of amount reported is prior financial year, if those changes have a material effect in the current interim period, issuances, buy-backs repayment and restriction of debts, equity and potential equity shares dividend, aggregate on per share, segment revenue, segment capital employed and segment result for business segments or geographical segments whichever is the enterprise primary basis of segment reporting, the effect of changes in the composition of the enterprise during the interim period such as amalgamation, acquisition or disposal of subsidiaries and long term investments, restriction and discontinuing operation and material change in contingent liabilities since the last annual Balance Sheet date. The above information should normally be reported on a financial year to date basis. However the enterprise should also disclose any events or transaction that are material to an The AS-25 related to Interim financial reporting is not accordingly followed in the accounting of Cooperative Societies. 26. AS-26 Intangible Assets :This comes into effect in respect of expenditure incurred on intangible item during the accounting periods commencing on or after 1-4-2003 and is mandatory in nature from 235 understanding of the current interim period.

that date for (1) Enterprise whose equity or debt securities are listed on a Recognized Stock Exchange in India (2) All other commercial, industries and business reporting enterprises whose turnover for the accounting period exceeds Rs. 50 crore. An intangible asset is an identifiable non-monetary asset without physical substance held for use in the production or supply of goods and services for rental to other, of for administrative purposes. An intangible asset should be recognized if, and only if it is probable that the future economic benefits that are attributable to the asset will flow to the enterprise and the cost of the asset can be measured reliably. An enterprise should assess the probability of future economic benefit using reasonable and supportive assumption that represent best estimate of the set of economic conditions that will exist over the useful life of the asset. Internally generated goodwill should not be recognized as an asset. No Intangible asset arising from research ( or from the research phase of an internal project) should be recognized. Expenditure on research (or on the research phase of an internal project) should be recognized as an expense when it is incurred. An intangible asset arising from development ( or from the development phase of an internal project) should be recognized if and only if an enterprise can demonstrate all of the technical feasibility of completing the intangible asset so that it will be available for use or sale its intention to complete the intangible asset and use or sell it, its availability to use or sell the intangible asset 236

how the intangible asset will generate probable future economic benefit. Among other things the enterprise should demonstrate the existence of a market for the output of the intangible asset, the availability of adequate technical, financial and other resources to complete the development and to use or sell the intangible asset and its ability to measure the expenditure attributable to the intangible asset during its development reliably. Internally generated brands, mastheads publishing titles, customer lists and items similar in substance should not be recognized as intangible assets. The AS-26 for intangible assets is not applicable in Cooperative Societies because they do not have any copyright or patents thus, this standard is not fully applicable in the organization. AS-27 Financial Reporting of Interests in Joint Ventures :This standard comes into effect 1.4.2002. In respect of separate financial statements of an enterprise this standard is mandatory in nature from that date. In respect of consolidated financial statement of an enterprise this standard is mandatory nature. Where the enterprise prepared and presents the consolidated financial statement in respect of accounting periods commencing on or after 1.4.2002. A Joint venture a contractual agreement where by two or more parties undertake an economic activity which is subject to joint control. 237

In respect of its interest in jointly controlled operations a ventures should recognize in its separate financial statements and consequently in its consolidated financial statement, the assets that it controls and the liabilities that it incurs and the expenses that it incurs and its share of income that it earns from the joint venture. In respect of its interest in jointly controlled assets a ventures should recognize in its separate financial statement and consequently in its consolidated financial statement its share of the jointly controlled assts, classified according to the nature of the assets, any liabilities which it has incurred its share of any liabilities incurred jointly with the other venture in relation to the joint venture, any income from the sale or use of its share of the output of the joint venture, together with its share of any expenses incurred by the joint venture and any expenses which it has incurred in respect of its interest in the joint venture. In a ventures separate financial statement, interests in a jointly controlled entity should be accounted for as an investment in accordance with AS-13. In its consolidated financial statement a ventures should report its interest in a jointly controlled entity which is acquired and held exclusively with a view to its subsequent disposal in the near future and an interest in a jointly controlled entity which operate under severe long term restriction that significantly impair its ability to transfer funds to the ventures. Interest in such a jointly controlled entity should be accountant for as an investments in accordance with Accounting Standards ( AS-13)

238

A venture should disclose the aggregate amount of the following contingent liabilities under the probability of loss is remote, separately from the amount of other contingent liabilities, any contingent liabilities that the ventures has incurred in relation to its interests in joint ventures and its share in each of he contingent liabilities which have been incurred jointly with other ventures, its share of the contingent liability of the joint venture themselves for which it is contingently liable for the liabilities of the other venturers of a joint venture. A venture should disclose the aggregate amount of the following commitment in respect of its interest in joint ventures separately from other commitments, any capital commitments of the venture in relation to its interest in joint ventures and its share in the capital commitments of the joint venture themselves. A venture should disclose a list of all joint ventures and description of interests in a significant joint venture. In respect of jointly controlled entities the ventures should also disclose the proportion of ownership interest name & country of the incorporation or residence. A venture should disclose in its separate financial statement the aggregate amount of each of the assets, liabilities, income and expenses related to its interests in jointly controlled entities. The AS-27 Financial Reporting in Joint Ventures is not applicable in case of Cooperative Societies as they do not prepare consolidated financial statement etc. 28. AS-28 Impairment of Assets :239

This standard comes into effect in respect of accounting periods beginning on or after 1st April 2004 and will be mandatory in nature from that date for all enterprise (a) which fall in any one or more of the categories in level I at any time during the accounting period. ( b) 1-4-2006, for the enterprise which do not fall in any of the categories in (a) i.e. level I, but fall in any one or more of the categories of level II and (c) 1-4-2008 for the enterprise which do not fall in any of the categories in level I and level II above it will be applicable to level III categories enterprise in respect of accounting period commencing on or after 1-4-2008. A release issued by ICAI said that the objective of AS-28 is to prescribe the procedure that an enterprise should apply to ensure that its assets are carried at no more than their recoverable amount. An asset is carried at more than its recoverable amount if its carrying amount exceeds the amount to be recovered through use or sale of the assets. If this is the case the asset is described as impaired and the accounting standard requires the enterprise to recognize an impairment loss. AS-28 also requires the recognition of an impairment loss as an expenses to the statement of profit and loss immediately unless the assets is carried at revalued amount is accordance with AS-10, accounting for fixed assets, in which case any impairment loss of a revalued asset is treated as a revaluation decrease under AS-10 This accounting standard will not apply to inventories ( AS-2), assets arising from construction contracts (AS-7), deferred tax assets (AS-22), and financial assets ( including investment under AS-13). 240

The AS-28 Impairment of Assets, the policies are not disclosed in the financial statement thus it is not possible to study this particular standard.

29. AS-29 Provisions Contingent Liabilities and Contigent Assets :This standard comes into effect in respect of accounting periods commencing on or after 14-2004 and is mandatory in nature from the date in its entirely to the enterprise covered in various categories of Level I, Level II and Level III enterprises. This standard has been introduced to ensure that appropriate recognition criteria and measurement basis are applied to provisions and contingent liabilities and that sufficient information is disclosed in the notes to financial statements to enable users to understand their nature, timing and amount. This standard will applied in accounting for provisions and contingent liabilities and in dealing with contingent assets except. (a) Those resulting from financial instrument that are carried at fair value. (b) Those resulting from extra-ordinary contracts. (c) Those arising in insurance enterprise from contracts with policy holders and, (d) Those covered by another accounting standard.

241

For each classes of provision an enterprise should disclose the carrying amount at the beginning and at the end of the period, additional provision made during the year, amount utilized and unused amount reserved during the period. An enterprise should disclose for each class of provision. (a) A brief description of the value of the obligation and the expected timing of any resulting outflows of economic benefits (b) an indication of the uncertainties about those outflows (c) the amount of any expected reimbursement stating the amount of any assets that has been recognized for that expected reimbursement. An enterprise should disclose for each class of contingent liability at the balance sheet date a brief description of the nature of contingent liability and where practicable. (a) an estimate of its financial effect (b) an indication of uncertainties relating to any outflow. (c) the possibility of any reimbursement. The AS-29 provisions, contingent liabilities and contingent assets is not followed while doing accounting and preparing financial statements because no foot note and notes to accounts etc are given which discloses the ordinary and extra-ordinary activities.

242

CO-OPERATIVE SOCIETIES AUDIT SYSTEM IN UTTAR PRADESH


Auditing in the present era has assumed great importance. It is generally associated with checking and reliability of accounts. The benefit of an audit flow to different user, group owners, government and other third party. In order to understand the importance of audit in to-days business world we should have some idea about its history. The stages of evolution of the system of auditing may be discussed primarily in three phases Auditing during ancient times Auditing during medieval period auditing since time of industrial revolution. (1) Auditing during ancient times :The genesis of auditing can be traced back to ancient civilization auditing during that period was associated mainly with public accounts and not with private business. This is because the businesses were small and individuals who invested capital usually themselves maintained account. Hence there was no need of checking them. These civilization on the other hand had organized system of government. In those times the government was essentially 243

concerned with collection and accounting of tax receipts and their subsequent disbursement. The governmental accounting records of various transaction and assets were maintained by the official of the King and were approved only after, they were heard by a persons called 'auditor' in the presence of the King and public. It may be interesting note that the term 'auditor' is based on Latin word 'audire' which means to hear. Historical evidence indicated that the ancient Egyptians Greeks and Romans adopted various audit procedure to ensure that the accounts to be heard were free from errors and frauds. (2) Auditing during medieval period :The earliest reference to accounting and auditing system prevalent during this period is found in the accounting records belonging to exchequers of England and Scotland. These are, in fact the world's oldest surviving accounting records. According to them auditor of cities and towns were held publicly and auditors used to detect frauds and errors from what they heard or did not hear. There records also indicate the beginning of private audit. Lords of large manors traders and other gradually adopted the practice of maintaining accounts and getting them audited. The Renaissance in Italy in the fifteenth century led to a rapid growth of industry and commerce. The entire Europe was affected by this 'revival of learning'. In 1494, Luca Pacioli, the Italian mathematician, first published his comprehensive treatise on the principles of double entry system. The use of this system made it possible to record not only cash but also all other types of

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mercantile transactions. The scope of auditor's work, therefore was considerably enlarged in Europe during this period. (3) Auditing since the time of Industrial Revolution:Industrial revolution of England was another landmark in the history of trade and commerce. This led to a great increase in the volume of trading operations which necessitated the use of moral capital and the average trader was compelled to combine in partnership with others. Consequently, big enterprises in form of partnership firms and joint stock companies were form. The growth of business enterprises before and after the revolution was accompanied by improved accounting system. Besides this, the separation of ownership from management in British companies made stock holders realize that their interest could be well protected by an independent and impartial audit. Such development have a direct effect on the evolution of the practice of auditing, but the audit of business account could not be common until the 19th century. The enormous increase in the trade, commercial and industrial activities further necessitated of big business houses. Under these conditions the commercial public became perfectly aware of the advantage of the services of auditors and the importance of audit increased to such an extent in those days that the account were thought to be misleading and incorrect unless they were audited by professional and qualified auditor. The Institute of Chartered Accountant of England and Wales was incorporated by Royal 245

Charter on May 11, 1880 with the sole purpose of preparing auditors. Usually auditors in India were also prepared in this institute. In January 1923, the British Association of Accountants and Auditors was established and a person after passing his examination from this association could be fully competent to work as professional auditor in India.

Auditing In India :From 1914 to 1932, The history of auditing in India dates back to April 1, 1914 when the Indian Companies Act 1913 came into force. The growth of the accountancy profession in this country was actually the outcome of this act, which made it obligatory on the part of every company registered under it to have the accounts audited at least one every year. The act for the first time prescribed the qualification of an auditors. Initially the government of Bombay was first to arrange for conducting the courses of study in this direction. The qualification of being an auditor as obtained by passing the examination of the Government Diploma in Accounting ( G.D.A.) conducted by the Bombay government. From 1932 to 1949. Till 1932 it was the concern of the provincial ( now state) government is arrange for the education of and to prepare qualified auditors. Thereafter, the central government established an Indian Accounting Board under the Auditor's Certifical Rules 1932, under these rules, registered accountants ( R.A.) were prepared to work as qualified auditors. 246

From 1949 to 1956. The Chartered Accountants Act was passed in 1949 and it came into force on July 1, 1949. On the passing of this act the autonomy was granted to the accountancy profession and as a result, the regulation control and management of the profession passed from the Central Government to the profession i.e. in the hands of the Indian Institute of Chartered Accountants which was formed under the provisions of the said act. Now a person has to pass the examination conducted by it. Only then he can obtain his certificate of chartered accountants ( C.A.). From 1956 onwards. In 1960 some important amendments were made in the Companies Act, 1956 and the Companies (Amendment) Act 2000 is the last one in the service of such amendments. The Companies Amendment Act 1956 has inserted a new section 233 (B) under which the central government has been empowered to order audit of cost accounts in the case of specified companies by a cost and works accountant within the meaning of the cost and works accountant Act of 1959. The Income Tax Act 1961 has made the audit of accounts of some individual compulsory which is an important land mark in the history of the profession.

Definition of Auditing :The word 'audit' a wide usage and it now means a through scrutiny of the books of accounts and its ultimate aim is to verify the financial position disclosed by the balance sheet and the profit and

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loss account of a company . The following are some of the definitions of audit. 'An audit may be said to be such an examination of books accounts and vouchers of a business as will enable the auditor to satisfy that the balance sheet is properly drawn up so as to give a true and fair view of the state of affairs of the business whether the profit and loss account give a true and fair view of the profit or loss for the financial period according to the best of his information and the explanation given to him and as shown by the books, and , if not, in what respect he is not satisfied.' Spicer and Pegler 'An audit denotes the examination of a balance sheet and profit and loss account prepared by other together with the books, accounts, and vouchers relating thereto in such a manner that the auditor may be able to satisfy himself and honestly report that in his opinion such balance sheet is properly drawn up so as to exhibit a true and correct view of the state of affairs of a particular concern according to the information and explanations given to him as shown by the books.' F.R.M. De Paula 'Audit may be said to be the verification of the accuracy and correctness of the books of accounts by an independent person qualified for the job and not in any way connected with the preparation of such accounts.' R.B. Bose Thus, audit is a systematic and scientific examination of the accounts of a business. The fundamental question is how an auditors should perform 248

this scrutiny to his satisfaction and according to the wishes and instruction of his client. For this, the following definition gives a clue. 'Auditing may be defined as inspecting, comparing, checking, reviewing, vouching ascertaining, scrutinizing, examining and verifying the books of accounts of a business with a view to have a correct and true idea of its financial state of affairs.' M.L. Shandilya In short, an audit implies an investigation and a report. The process of checking and vouching continues until the investigation is completed and the auditor enables himself to report in accordance with the terms of his appointment.

Objectives of Audit :The objects of auditing may be stated as follows : 1. Primary objective :- Examine Reliability and Validity of Financial Statements. Secondary objective :- Detection and Prevention of Errors and Frauds. 1. Examines Reliability and Validity of Financial Statement :According to SAP-2 issued by the Institute of Chartered Accountant of India (ICAI) the objective of audit of financial statement is to enable the auditor to express his opinion as regards the truth and fairness of assertions made in those statement sec. 227 of the Companies Act requires a company auditor to state whether in his opinion (a) the balance sheet of the 249

company gives a true and fair view of the state of the company's affairs as at the and of its financial year and (b) the profit and loss account gives a true and fair view of the profit or loss for its financial year. To enable to render an opinion the auditor must first make a satisfactory examination of the financial statement and the accounts and records prepared as per the Accounting Standard (AS) and Standard Auditing Practice (SAPs) issued by ICAI and the statutory requirements if any while making such examination the auditor is and must in fact and appearance act as an independent and professional reviewer. Auditor independence means freedom from any control and influence of interested parties such as the client-organization, its management and owners. His professional expertise will enable him to exercise due care in selecting appropriate procedures and techniques so as to ascertain that the financial data under examination, as prepared and submitted by his client are a fair representation of what they claim to represent. Rendering an opinion on the truth and fairness of the financial statements is legally compulsory in the case of a company auditor and the auditor of a banking company an insurance company and a cooperative society and optional for non-company auditors, unless the terms of their appointment or the law applicable to the business units or institutions under audit, provide otherwise. The auditor's opinion is only with the respect to the truth and fairness of the assertion as to financial position of the enterprise as made in the balance sheet and results of its operations as stated in the profit and loss account. It is not 250

an assurance as to the future viability of the enterprise or efficiency and effectiveness with which the management has conducted the affairs of the enterprise. 2. Detection and Prevention of Errors :According to SAP-4 "Fraud and Error" issued by ICAI an error may be defined as any unintentional mistake or mis-description in the books of accounts or records whether by way of (a) mathematical or clerical mistakes in the records and data (b) oversight or misinterpretation of facts or (c) misapplication of accounting policies An error is generally taken to be innocent and not deliberate. Where it appears to be willfully made, it assumes the character of a fraud. The following are the various kinds of errors. Errors Errors of Omission Errors of Commission Compensating Errors Error of Principle

(1) Errors of Omission :This is the first type of error. Under errors of omission these errors generally arise due to the mistake of a clerk. If a transaction has been omitted from being entered in the books of accounts, wholly or partially it is an example of error of omission. There are items like purchases or sales which ought to 251

have been recorded in the books of accounts but due to oversight or carelessness they have been wholly omitted from being recorded. (2) Error of Commission :Error of commission usually arise through negligence in the matter of recording some business transaction in the book of accounts. The following are some example of error of commission. (i) Incorrect Recording :When a transaction through recorded in the journal has been wrongly entered in the books of original entry, error of commission is said to arise e.g. sale of Rs. 100 is entered in the sale book as Rs. 10 such an error does not effect the trial balance. (ii) Incorrect Posting or Posting an Item to Wrong account :It is possible that a transaction may be entered correctly in the journal but when posted on the ledger a wrong account may be entered e.g. sale of Rs. 100 is written as Rs. 10 the debit of customers account thus debiting Rs. 90 less than the real figure thus one side of the trial balance will be short by Rs. 90. Similarly when an amount of Rs. 100 is posted to the debit of Mohan's account instead of Ram's account to whom goods are actually sold. (iii) Error in Totaling and Balancing :-

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Sometimes errors of commission arise in the books through incorrect casting and calculation. Such cases are also the errors of commission. Such error will affect the trial balance. The result of such error would be that the error in the total on the debit side would lead to the error on debit side of the trial balance and so on.

(iv)

Error in Carrying Forward Totals :Error of commission may

creep into the books when balance of different accounts are carried forward to the trial balance. The balance of accounts may be carried forward less or more than the real figure or double of it and sometimes also to the other side of the trial balance. For example the balance of Rs. 125 on the debit of an account may be carried forward to the debit column of the trial balance as Rs. 115 or Rs. 135 or Rs. 250 and even Rs. 125 may be written to the credit column of the trial balance thus entering the correct figure against this account but in wrong column. (3) Compensating Errors :Compensating error arise when an error is counted balanced or compensated by any other error or errors so that the adverse effect of one on debit or credit side is neutralized by that of another on credit or debit side. For example - A' account which was to be debited for Rs. 200 was credited for Rs. 200 and 253

similarly B' account which was to be credited for Rs. 200 was debited for Rs. 200. If Rs. 120 is posted to the debit of the wages account in place of Rs. 100 and similarly to the credit of rent account Rs. 120 is posted in place of Rs. 100 it is an example of compensation error.

(4) Errors of Principle :Errors of principle generally arise out of a disregard for the principle of accountancy such errors are sometimes committed intentionally to falsify and manipulate accounts, with an object of showing more or less profit than their actual figures. The following are some of the examples of such type of errors. (i) Incorrect Allocation of Expenditure between Capital and Revenue :When a revenue expenditure is treated as capital expenditure and profit are inflated thereby it is a case of error of principle. For example if repair to machinery are treated as an addition to it in the machinery account it would be an error of this nature. The result would be an increase in the cost of machinery without any charge on profit and loss account, and as such the balance sheet would not exhibit a true and correct position of the business.

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(ii)

Posting Revenue Items to Wrong Class of Revenue Account :When an item of wages is posted to general expenses account and similarly an account on salary account is posted to advertisement account, such errors culminate in accounts. Such errors will not affect the ultimate profit, hence are said to be minor error of principle. But after all accounts of a concern are falsified and become incorrect. (iii) Posting an Item of Revenue or Expenditure to a Personal Account :If rent paid is a landlord is posted to the debit of his personal account it is an example of error of principle. The result of such an error would be that profits would be inflated and the balance sheet would be wrong. (iv) Valuation of Assets, Against Fundamental Principle of Accountancy :When different types of assets are not valued in accordance with the principle of accountancy, major errors of principles arise and directly affect the profit and ultimately the balance sheet. Thus the errors of principle are serious types of error and they can be detected only if the auditor makes a searching and exhaustive scrutiny. Nevertheless, error of principle do not affect the trial balance. AUDIT PROCESS 255

An audit process is a well defined methodology for organizing an audit and is adapted to accomplish audit objective. There are three separate and distinct phases in the audit process namely Planning the Audit, Conducting the Audit and Reporting the Findings. These phases are explained by the diagram given below.

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Thus the audit process consist of the following three phases : 1. 2. 3. Planning the Audit Conducting the Audit Reporting the Findings

(1) Planning the audit :Planning the audit consist of the various phases such as (a) The audit process should begin with obtaining understanding of client's business and industry in which it operates. Acquisition of knowledge of client's accounting system policies and internal control processes is essential. (b) (c) Base on these facts, an overall audit plan is developed. The last step in this initial phase of audit process is to develop a detailed audit program for the specific engagement. (2) Conducting the audit :Conducting the audit consist of (a) This phase of audit process involves activities undertaken to execute the audit program. The first step in this phase involves studying and evaluating the internal control system of the client. (b) Various compliance and substantive procedure are adopted for this purpose. The evidence obtained through these procedures is evaluated for its sufficiency and appropriateness.

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(c)

All documentary evidence are obtained becomes a part of working papers.

in this stage

(3) Reporting the findings :Reporting the findings consist of (a) In this phase of audit process the auditor determines the truthfulness and fairness of the financial statements on the basis of information obtained and evaluated. (b) At last, he expresses his opinion through the audit report.

AUDIT REPORT An auditor report is a medium through which an auditor express his opinion on the financial statements. It summarizes the results of the examination work conducted by the auditor. An auditor involves collection of evidence about the financial statements through various means. The collected evidence has to be carefully sifted and examined. From this examination the auditor has to draw appropriate conclusion which he must convey through the audit report. The main objective of an independent financial audit is the expression of an opinion regarding the truthfulness and fairness of presentation of financial statement. This opinion is communicated to the owners/members through the medium of audit report.

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Elements of Audit Report :The audit report should describe the scope and nature of the audit work and the opinion of the auditor. Besides this, there are various basic elements which should be therein an audit report. Important elements of an audit report are listed by AAS - 28 are described below. (1) Title :An appropriate title such as 'Auditor Report', helps the readers to identify the report and to distinguish it from the reports issued by others. (2) Addressee :The report should be addressed to the client or appointing authority. In case of a limited company, the report should be addressed to the shareholders. (3) Introductory Paragraph :The introductory paragraph should identify the financial statements which have been audited ( typically the balance sheet, profit and loss account and cash flow statement) and it also indicates that the statements are management's not the auditor's responsibility. The independent auditor is responsible only for expressing an opinion on the financial statements. (4) Scope Paragraph :The scope paragraph should state that the audit was conducted in accordance with the accounting standards generally accepted in India and describes what the auditors did in the audit. The description identifies several limitations of an audit. These include 260

The reasonable ( not absolute) assurance The discovery of material ( not all) misstatements. Reliance on test basis for audit examination. Reliance on judgment for assessing adequacy of accounting principles and assessing estimates. (5) Opinion Paragraph :The opinion paragraph should make a reference of financial reporting framework being used by the entity to prepare the financial statements and whether the financial statements present true and fair view of all material matter in accordance with the financial reporting framework being used. It should also state whether the financial statement comply with statutory requirements, if any (6) (7) Date of the report :It is the date on which the audit report is signed. Place of Signature :The report should name a specific location, which is generally the city in which the auditor maintains his office. (8) Auditor's Signature :An audit report should be signed by the auditor in his personal name and in case of a firm being appointed in the name of audit firm also. Membership numbers assigned by the Institute of Chartered Accountants of India should also be mentioned. Thus, Auditor's report is the medium through which an auditor expresses his opinion on the financial statements. It 261

summarizes the results of the examination work conducted by the auditor. An auditor involves collection of evidence about the financial statements through various means. The collected evidence has to be carefully shifted and examined. From this examination the auditor has to draw appropriate conclusion which he must convey through the audit report. AUDIT OF COOPERATIVE SOCIETIES A Cooperative Society is framed under the provision of the Cooperative Societies Act 1912 and hence its accounts are prepared under the rules and regulation laid down for the purpose . The auditor of such a society is appointed by the Registrar of Cooperative Societies. He conducts the audit on behalf of the registrar and also submits his report to the registrar. The fees of the auditors are paid by the society as per the status of the society sometimes the fees are determined on the basis of the turnover or business which the society transacts. Formerly, books and records were maintains by a society as prescribed by the Central Cooperative Societies Act of 1922 Societies but now they are governed by the State Cooperative Act 1912 and state legislation have provided for the

maintenance of books and accounts as on the lines stipulated under section 209 of the Companies Act 1956. However much depends upon the size, nature and business transacted by a particular society in this regard. No specific formula can laid down in this respect. It is also laid down that member can not hold more than 10% of the share capital of the society. 262

Registration of Cooperative Societies :Any ten person who are competent to contract may make an application to Registrar of the Cooperative Societies of the state in which it is proposed to establish the society. In case the object of the society is to create funds to be lend to the member, the member should be residing in the same town or village or in the same group of villages or should be members of the same tribe, class, cast or occupation unless the registrar otherwise directs. In certain circumstances a registered society can also be a member of a another Cooperative Society. A central Cooperative Bank may be created by one individual. Liability of the Members :According to section 4 of the Act the state government by general of special order otherwise directs. (1) The liabilities of a society of which a member is a registered society shall be limited. (2) The liability of a society of which the object is the creation of funds to be lend to its members and of which the majority of the members are agriculturists and of which no member is a registered society, shall be unlimited. The word limited must exist as the last word in the name of every society and with limited liability.

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By Laws :Every registered society has to frame its own by laws which has to be registered with the Registrar of Cooperative Societies. Section 11 of the Act provide that no amendment of the by-laws of a registered society shall be valid until the same has been approved and registered by the registrar of Cooperative society.

Restriction imposed on Cooperative Societies :(1) Restriction on Share Holdings : No member other than a registered society can hold more than 20 percent of the share capital of a company or shares of the society worth more than Rs. 1000. (2) Restriction on Transfers of Shares :A member of an unlimited society can not transfer his share or interest in the capital of a society unless (a) (b) he has held such share or interest for not less than one year and the transfer or charge is made to the society or to a member of the society. The by-laws of a registered society may provide for the refund of the share money when a member ceases to be a member either at the own instance on if he is disqualified to be a member or when he dies.

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(3) Restriction on Loans :(a) A cooperative society can not advance a loan to any person other than its members except with the general or special permission of the registrar. (b) A society with unlimited liability cannot lend money against the security of movable property except with the permission of the registrar. (c) The state government has the power to prohibit or restrict loans against mortgage of immovable property by any registered society or class of registered societies. (4) Restriction on Borrowings :A registered cooperative society is allowed to receive deposits and loan from persons other than members only to such extent and under such conditions as may be prescribed by the rules or by-laws. Prior Claim of Society :Section 19 of the Cooperative Societies Act lays down that subject to any prior claim of the government in respect of land revenue or of a landlord in respect of rent, a registered society shall have a prior claim as against others creditors for the recovery of any amount due from a member or a past member in respect of the following debts.

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(a)

For the supply of seed or manure or a loan advanced for this purpose ( within 18 months from the date of such supply or loan). or

(b)

For the supply of cattle, fodder for cattle, agricultural or industrial implement or machinery, or raw material for manufacture or a loan advanced for the purchase of any of these.

Exemption from Income Tax Stamp Duty & Registration Fees :Section 28 of the Act has empowered the central government to exempt any registered society or a class of registered societies from income tax ( payable on the profits of the a society or on the dividends a other profit related payments received by the members of the society), stamp duty, or registration fees. Investments of Funds :A registered society may invest or deposit funds :(a) (b) (c) (d) In a Government Saving Bank or In any of the securities specified in Section 20 of the Indian In the shares or securities of the other registered societies or with any other bank or person carrying on the business of banking, approved for the purpose by the Registrar or

Trust Act 1882 or

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(e) Act.

In any other mode permitted by the Cooperative Societies

Contribution for Charitable Purposes :A registered society may with the sanction of the registrar contribute for any charitable purposes as defined in section 2 of the charitable Endorsement Act 1890. However such contribution can not exceed 10% of the net profits remaining after the compulsory transfer to the reserved fund. Audit : Section 17 of the Act provide that (1) The Registrar shall audit or cause to be audited by some person authorized by him by general or special order in writing in his behalf the accounts of every registered society once at least in every year.. (2) The audit under sub-section (1) shall include an examination of overdue debts if any, and a valuation of the assets and liabilities of the society. (3) The Registrar, the collector or any person in authorized by general or special in writing in his behalf by the registrar shall at all times have access to all the books, accounts papers and securities of a society and every officer of the society shall furnish such information in regard to the transaction and working of the society as the person making such inspection may requires. 267

Under section 43 (h) of the Cooperative Societies Act 1912 and under the provisions of the various state acts in this matter the state government may have the power to frame rules regarding the audit of Cooperative Societies. Normally these rules prescribe the qualification of the persons who can act an auditors of the society, the rights and duties of such auditors, the form and contents of audit report etc. Who Can be the Auditor :As noted already section 17 of the Cooperative Societies Act 1912 requires the registrar to audit or cause to be audited the accounts of a Cooperative Society. The registrar therefore gets the audit conducted either through his departmental auditor or alternatively through a person enrolled in a panel maintained by the registrar for conducting audit. Any person who is Chartered Accountant of G.D.A. or a retired officer of the cooperative department of the state government may apply to the registrar for inclusion of his name in the panel of the auditors of the cooperative societies. Rights and Duties of an Auditor :1. 2. The auditor has all times access to all the books, accounts, paper an securities of the society. Every officer of the society is bound to furnish to the auditor all information regarding the transaction and the working of the society. 268

3. 4.

Many state Acts give even wider power to the auditors of a Cooperative Society. The auditor should acquaint himself with relevant Cooperative Societies Act and the by-laws the society concerned. An auditor of a cooperative society is required to point the various irregularities improper ties and Vouch the receipt of cash on account of deposits with the cash book and counterfoil of the receipt book, cash book etc. departures from the provisions of the Act and the by laws.

5.

6.

Interest

received

from

borrowers or return of loan from them should be checked with the agreement between the borrowers and the society counterfoils of the receipt book, cash book etc. 7. Central etc. 8. Loans to members should be verified by referring to the resolution of the managing committee, receipts issued by the borrower, cash book etc. 9. as usual. 10. overdue debts if any. He should examine the He should vouch the expenses Cooperative Bank Money borrowed from the should be vouched with the correspondence, resolution of the managing committee, cash book

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11. with cash book. 12. 13. verified in a usual manner. 14. the auditor should

Cash in hand should be vouched in a usual manner i.e. by physical count and comparing it He should ensure that

investments are only in the prescribed manner. Other assets if any should In case of consumer society check the sales with the sales summaries, purchases with the order book, stock book, etc. Stock should be verified and the method of valuation of stock should be examined. 15. Ensure that the Balance Sheet and Profit and Loss Account are drawn up in accordance with Forms A and B of Third Schedule given under section 56(21) of Banking Regulation Act or as near thereto as possible unless the Registrar of Cooperative Societies has prescribed another form. Book of Accounts / Records :There is no mandatory provision is regards maintenance of books and records by a Cooperative Society under the central Cooperative Societies Act. However the state legislations have provided for the maintenance of accounts along the lines stipulated under Sec 209 of the Companies Act. Accordingly a cooperative society may be required to maintain books of accounts in respect of the following :(a) All sums of money received and expended by the society and all matters to which receipts and expenditure relate 270

(b) (c) (d)

All sales and purchase of goods by the society. All stock in trade. All assets and liabilities of the society. However the kind of books of accounts to be maintained by

any society will depend on the category to which it belong. Accordingly a cooperative credit society will not be required to maintain books of account concerning purchases and sales or a cooperative housing society will not be called upon to maintain a register of stock in trade. Special Points in Cooperative Audit :The following point may be noted in the audit of cooperative societies these points are classified into General , Income Expenditure and Miscellaneous. General :(1) The auditor should go through the rules and regulation of the society and sec how far they are being followed in it. (2) He should examine the capital structure of the society and find out the number of its members and also their shareholding. He should also inspect the minutes of the members. (3) He should also examine the internal check system in operation in the society. Income :(4) He should vouch the receipt of cash on account of share capital with the Register of the shareholder and also on account of deposit with the cash book and counterfoils of receipt

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issued. If it is a consumer society its sales should be vouched with the summaries and sales account. (5) He should vouch the receipt of interest and return of loans from borrower. Proper records must always be maintained for this purpose. Expenditure :(6) He should vouch the loans granted to the borrower by reference to the agreements. (7) Other management and establishment expenses should also be checked by him. Miscellaneous :(8) A cooperative society pays dividend to its members as per the rules and regulation. It should be ascertained as to how such a dividend is calculated and is recorded in the books. The rate should not exceed 6%. (9) He should verify the assets and see that the stock is properly valued. (10) He should specially verify the cash in hand and investment of such a society. (11) He should note that 25% of the profit is transferred to the reserve fund and 10% is carried to welfare fund. (12) He should ensure that the accounts of such a society are prepared in accordance with the provision of the cooperative societies Act 1912.

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(13) The auditor should examine carefully the entries made in the pass books issued to the members as regards payment made to or by them. He should also have the balances in the pass book confirmed by a representative number of members, if not by all. (14) He should discuss the draft report with the members of the managing committee in its meeting called for the purpose and finalize the report only after such discussion.

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LIMITATIONS OF ACCOUNTING SYSTEM IN CO-OPERATIVE SOCIETIES IN UTTAR PRADESH


The term limitation or the disadvantage denotes an argument that a team brings up against a policy action that is being considered . The word limitation in dictionary means a limiting condition, restrictive weakness, lack of capacity or inability etc. The word limitation is a noun which generally means a restriction that limits something. An imperfection or a shortcoming which limits something use or value or a time period. The Accounting records relate to the part transaction, which provide fairly good account of economic activity of the business enterprises. However in business for decision point of view we need information, which relates not only to past but also about present and future. Financial accounting make provision for financial information but it does not provide non financial information such as behavioral and socio-economic . If the objective of accounting reports is to influence the behavior through decision making then it must provide the data concerning the behavior and outcome of economic activity to facilitate performance evaluation. Therefore the accounting information does not fully meet different type of information requirement of varied decision - making 274

situation . Accounting provide stewardship information and not decisional information to the users. The Accounting system in the Cooperative Societies is the Double Entry System which is assumed as the best and the quite suitable system of accounting though it suffers from the various draw back or limitation which are explained in this chapter in detail. Thus the various limitations or the drawbacks of Double Entry System of accounting are explained as below :(1) Difficult to Apply Rules of Debit and Credit :The main disadvantage of double entry system of accounting is that it is difficult to apply rules of debit and credit. Many transactions are such in which out of the two aspects of a transaction in one aspect one rule applies while in other aspect others rule applies. Thus it is not only difficult but teasing also to apply two different rules in the same transaction, if the transaction contains such two aspects which are governed by different rules, a minor mistake in it makes the accounting record defective. (2) Complexity :Another main problem or the disadvantage of the double entry system is that the double entry book keeping method is complex in nature. For the small business owner who has accounting the double entry system can seem like leaning a whole new language Terminology such as debits and credits replace simple word and "add" causing 275

confusion knowing when to debit an account and what corresponding account to credit can be difficult, and can throw on the novic a loop.

(3)

Costly System :Thee another disadvantage of the double entry system

is that the cost of maintaining the books is heavy, while using a double entry system is directly related to the system's complexity because records are kept in the companies, have books all over the place that they must keep track of. In some cases, it even become necessary to here additional employees for each department. If we are using an accountant our cost will go up as our books will become more complex requiring our accountant to bill greatly and highly for long hours. Thus, overall the cost of the double entry system will be high. (4) Time Consuming :Another disadvantage of the double entry system is the huge time consumption. The amount of time spent doing and verifying the books is another problem directly related to the complexity of the double entry system. Because accounting is done twice and therefore verified twice the double entry system eats up precious minutes that could be spent being productive in other way, In reality despite the fact that the double entry system can lead to more accurate books but it is time coming. (5) Require Special Knowledge of Accountant :276

Another disadvantage of the double entry system of book-keeping is that the double entry system of book-keeping unlike the single entry system is very complex and require special knowledge on the part of the accountant. At the double entry system of book keeping there are two aspects namely the debit and credit thus the transaction are recorded twice and it will not be conducted until the accountant have full knowledge of making and maintaining the accounts thus the double entry system require special knowledge of accountant, thus qualified accountant are required. (6) Not Suitable for Small Business :Another de-merit or a limitation of double entry system is that the double entry system of book-keeping is not suitable for the small firm or small business. A business house need to keep many books which is not suitable for small businessman. A small businessman can make simple list of his assets, liabilities, bank balance, and debtor and creditor on note books under the single entry system. (7) No Accuracy Before Making Trial Balance :Another de-merit or disadvantage or a limitation of double entry system is that in double entry system we can not check accuracy of journal before making of trial balance and after making of trial balance if we find that both side of trial balance are equal then we can say that day book is mathematically correct. (8) No Record of Non-Monitory Transaction :277

Another disadvantage or a limitation of this system is that in this system no record of non-monitory transaction can be kept that is the transaction which can not be expressed in terms of money are not recorded in accounting, hence the accounting is only and only limited it the monitory transaction for example the efforts and work of a manager to increase business can not be calculated in terms of money, thus it is a demerit to the system. (9) Legal Restriction :Another disadvantage to the double entry system is that in case of companies the various provision of the companies Act 1956 are to be compiled with and hence certain limitations are imposed by law on accounting system. In accounting legal and government restrictions play role of a barrier in effective accounting. (10) No Record of Changing Price Level :Basically the cost concept is adopted in accounting. Changing price are not considered . This is very serious drawbacks and a strong limitation of the system, it ignore the factors like change in inflation, deflection etc, fair market value of the assets is taken into consideration but still there remains some subjectivity. (11) No Application of Objectivity Factor :According policies are framed by the accountant and according to his own individual judgment hence it is 278

a subjectivity factor that prevails in accounting and objective factors are ignored. For example provision of doubtful debts, method of depreciation adopted recording certain expenditure as revenue expenditure or capital expenditure selection of method of valuation of stock in hand, period for writing off intangible assets and so on, hence it is subjective matter which prevails in accounting and objective factor is ignored. (12) No Records of Prospective Profits :In accounting provision is made for prospective losses like provision for bad and doubtful debts but no provision is made for prospective profits. This is another limitation of the double entry system of accounting which is based on the concept of conservation and it is recognized in AS-1. (13) Possibility of Manipulation of Accounts :The another serious drawback of the double entry system of accounting is that there is possibility of manipulation of accounts. In accounting different accounting policies for the treatment of same item adds to the probability of the manipulation, through various laws are there like accounting standards, and efforts are made to reduce these options to minimum but certainly could not be reduced to one. Thus as the accounts are prepared by the accountants who are natural persons thus their is great possibly of manipulation of accounts and human error which is a limitation of double entry system.

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(14) No Similarity Between The Accounting Principles :Another disadvantage or a de-merit of the double entry system of accounting is that in the double entry system of accounting there is no similarity between the accounting principles that is in case of a company different rules are applicable in case of sole traders different rules are applicable, and in case of partnership different rules are applicable thus there is no similarity between the accounting rules. (15) No Clarity Between Capital Income And Revenue Income :In the double entry system there is no clarity between capital income and the revenue income, it is also one of the serious drawbacks of the system. In some business the income is treated as capital income but in some business the income is treated as revenue income thus, their is no clarity between the capital income and revenue income, this is a serious shortcoming of the double entry system of accounting. (16) No involvement of Social Political and Social Interference :As we are in a society and have to follow the customs, traditions of the society in which we live but in case of accounting it is governed by its own accounting rules which are free from the social, political and social interference thus it is also a disadvantage or a limitation of the system. (17) Difficulty in the Application of Accounting Standards :280

The another difficulty or a disadvantage of the system of double entry is that it is difficult to apply all the accounting standard in the organization, as there are large amount of accounting standard issued by the Institute of Chartered Accountants of India and their is large complexity to apply those accounting standard in the organization and to disclose the relevant items in the financial statements thus their is a great problem. Thus, as the double entry system is regarded best and suitable for an organization the other hand, it suffers with large number of de-merits or disadvantages as stated as a costly system, time consumption, complexity, difficult to apply rules of debit and credit, special knowledge of accountant to pass entries in the books of accounts, non-recording of monitory transaction, no accuracy before making trial balance, no record of changing price level, legal restriction which are imposed, no record of prospective profits, no application of objectivity factor, possibility of manipulation of accounts, no similarity between accounting principle, no clarity between revenue income and capital income etc. The double entry system is considered as the appropriate system though it suffer from the various difficulties.

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CONCLUSION AND SUGGESTIONS


The present research can be concluded as the Cooperative Societies play an important role in the development of the state of Uttar Pradesh, thus its profitability and proper working is needed for the development of such societies. The system adopted by the Cooperative Societies for the accounting is the best system which is the double entry system of accounting through it suffers from the various shortcoming and drawbacks which are to be overcome for the effective working of Cooperative Societies. The first Chapter of the study consist of the Introduction of accounting and explains the proper procedure of accounting, along with that, it also focuses on the evolution and introduction of Cooperative Societies in India and in the state of Uttar Pradesh. The first chapter of the research study focuses on the cooperative movement in India and various types of the Cooperative Societies. Thus, this chapter deals with the introductory part. The second chapter of the present research explains the profile of the Cooperative Societies in Uttar Pradesh. It explains the various types of the Cooperative Societies which are there in the state of Uttar Pradesh, their functions, objectives, the working and the management of such societies, the membership of the organization, share capital of the 282

organization, business scheme, policy and business of the organization. This chapter deals with the advantages and future prospects of the various societies in the state. Apart from that this chapter also consists of the organizational structure of the Cooperative Societies in the state of Uttar Pradesh. Thus this chapter of the present research deals with the profile of the Cooperative Societies in Uttar Pradesh as well as the organizational structure of the Cooperative Societies in the state of Uttar Pradesh. The double entry system of accounting is regarded as the best system of accounting, the third chapter deals with the present accounting system followed in Cooperative Societies in Uttar Pradesh. This chapter explains the systems of accounting i.e. the single entry system as well as the double entry system of accounting in detail. This chapter explains the basic concept used in the double entry system such as the debit and credit, various rules regarding debit and credit, rules relating to personal account, nominal account and real account, the various stages of double entry system. and how an entry is recorded in journal, after that how the entry is recorded in subsidiary books such as ledger, the balance of each account in ledger is transferred to statement of trial balance and how the entries are passed in the various trading, profit and loss account and balance sheet and how the analysis and interpretation is done in the double entry system. Thus the third chapter explains the double entry system and how accounting is done in double entry system. The accounting is said to be the language of business. In order to have control over the language on must have command over grammar. In the same way knowledge of accounting principles is must for good command over the accounting . The fourth 283

chapter

of the present study deals with the accounting in Cooperative

Societies and its relation with accounting principles. This chapter studies the accounting principles such as the accounting concepts and the accounting conventions and how far as these principles followed in the accounting of Cooperative Societies. The professional bodies in the field of accounting all over the world have already declared a conceptual framework of accounting to satisfy the varying information needs of various users by preparing a common set of financial report/statement. This is the only reason which has led to the evolution of accounting standards and it is the function of accounting standard to provide a rational structural framework so that credible financial statements of top quality may be prepared . In India the Institute of Chartered Accountant of India (ICAI) have issued Indian Accounting Standards which should be followed as per the applicability and type of enterprise. The fifth chapter of the present study explains all the Indian Accounting Standards in detail and how far they are applicable and followed in the accounting of Cooperative Societies. In todays era auditing has assumed great importance, as it is associated with the checking and verification of accounts thus the reliability and accuracy of accounts depends on the minute observation of the auditors . It is only through proper observation and verification of accounts that manipulation of accounts is not possible by the accountants and if manipulation of accounts is done it is detected by the auditors. The sixth chapter of the present study deals with the Cooperative Societies Audit System in Uttar Pradesh. This chapter lays down the various provisions regarding the registration of Cooperative 284

Societies, liability of members, by laws and others various provision. Under Section 17 of the act for the appointment of the auditors, rights and duties of an auditor etc. Each and every system has its own advantage and drawbacks, its own merits and demerits or limitations, though the system adopted in the Cooperative Societies in Uttar Pradesh have its own limitations or drawbacks which is clearly explained and discussed in the seventh chapter of the present study. Thus this chapter explains the various drawbacks of the double entry system in detail. Thus, the Cooperative Societies play an important role in the development of the state of Uttar Pradesh but the financial position depicted by the financial statements of the Cooperative Societies explains the poor status of these societies in the state. The system of double entry followed in the Cooperative Societies do not have conformity with the accounting standards and principles which is a serious drawback of the study. By the deep analysis of the financial statement it can concluded that apart from having no conformity with the accounting standards and principles there is no disclosure of the accounting policies followed in the preparation of final accounts, the accounting standards are not fully adopted, no information is given through foot notes and notes to accounts, there is no proper disclosure of methods of valuation of inventories in the preparation of final accounts, no proper disclosure of information regarding recording of one sided transaction, no recording of non-monetary transactions ( in social cost benefit), no proper record of price level changes, no similarity between accounting principles, no interim report is supplied for users, no training for the technical staff in Cooperative 285

Societies, and no proper disclosure of published reports and financial statement for users.

FINDINGS OF THE STUDY :The present study focuses on the accounting system adopted and followed by the Cooperative Societies in Uttar Pradesh and after the research it can be said that though the Cooperative Societies are following the double entry system of accounting yet there is a lot of problems in fully adopting the present system. The problems are in the shape of finding of the research which are as follows : There is no conformity with the accounting principles. There is no conformity with the accounting standards. There is no disclosure of the accounting policies in the preparation and presentation of final accounts. The accounting standards are not fully adopted. No information is given through foot notes and notes to accounts in the financial statement. There is no disclosure of methods of valuation of inventories in the preparation of final accounts. There is no proper disclosure of information of recording of one sided transaction. There is no recording of non-monetary transaction. ( in social cost benefits). There is no proper record of price level changes. There is no proper similarity between the accounting principles. 286

No interim report is published for the users of accounting, researchers etc. No disclosure of published reports and financial records for users.

SUGGESTIONS :
The present study suffers with the large number of problems in adopting the double entry system. Thus, the various suggestions to overcome the problems suffered in adopting the present system may be explained as below. The various suggestions are as follows : 1) Full Disclosure of Accounting Policies :The first suggestion to improve the functioning of the accounting system adopted in the Cooperative Societies is that there should be full disclosure of the accounting policies followed in the preparation of accounts . The policies should be disclosed through the final accounts so that it may be helpful for the users. 2) Full Adoption of the Accounting Standard :Other suggestion to improve the functioning of the accounting system adopted in the Cooperative Societies is that the accountant while doing accounting should adopt fully the accounting standard i.e. AS issued by the Institute of Chartered Accountants of India. after the analysis of the final accounts it can be easily concluded that the accounting standard are not fully adopted. 3) Proper Disclosures of Policies through Foot Notes and Notes to 287

Accounts :Another suggestion which is required is that while preparing the final accounts the accountant should give the foot notes and notes to accounts which may disclose the accounting policies, method of depreciation used, method of inventories used for valuation of stock etc these foot notes and notes to accounts should be given in the final accounts. 4) Proper Disclosure of Method of Valuation of Inventories, Stock etc. :The another suggestions is that while doing accounting, the accountant should properly disclose the method of valuation of inventories or stock used in the production process. The final accounts through foot notes should disclose how the stock is valued and through which method such as LIFO FIFO, HIFO, average stock etc. it is valued. 5) Proper Disclosure of Recording of One Sided Transaction :Another suggestion to improve the functioning of the accounting system adopted in the Cooperative Societies is that there should be proper disclosure of recording of one sided transaction. One sided transaction should be properly disclosed. 6) Proper Recording of Non Monetary Transaction :The accounting in Cooperative Societies lacks the recording of non monetary transaction, there are a lot of non-monetary transaction, payments which are not shown in accounts such as services of manager etc. Thus there should be proper recording of non monetary transaction ( in social cost benefit). 288

7)

Proper Record of Price-Level Changes :Another suggestion to improve the

functioning of the accounting system in Cooperative Societies is that there should be proper record of price level changes as due to inflation and deflation the prices change thus the accountant while doing accounting and maintaining records should keep proper record of price level changes and should also disclose it. 8) Full Adoption of the Accounting Principles :Accounting principles consist of the accounting concepts and conventions, as far as accounting concepts are considered they are fully followed but the accounting conventions are not fully followed such as convention of full disclosure are not adopted as no notes to accounts and no foot notes is given thus the accountants in Cooperative Societies should fully adopt the accounting principles. 9) Preparation of Proper Interim Report :An interim report is necessary to know the progress of the business/ enterprise at certain period unless the final report comes thus in the Cooperative Societies they should prepare the proper interim report and should present it from time to time. 10) Proper Disclosure of Published reports, Published Literature for the Users, Researchers etc. :Another suggestion for the Cooperative Societies to improve the functioning of the accounting system 289

is that the department should disclose all the relevant information through the various published reports, financial records and various published literature of Cooperative Societies which should be used along with the financial records to study the relevant aspects by the researchers, society etc. 11) Proper Training of Technical Staff in Cooperative Societies :Another suggestion for the Cooperative Societies is that after the study one thing is noted that there is no training department for the technical staff, accountants etc where proper training is given thus there should be proper training department for the technical staff of the Cooperative Societies.

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