3631 Cater

UNDP
NETMON LLC
ACCOUNTING MANUAL FOR SAVINGS AND CREDIT COOPERATIVES

Developed by: NETMON LLC
Edited by: S.Sukhbat, Auditor D.Batjargal,Auditor
Funded by Microstart project, UNDP-Mongolia
2002
PREFACE NETMON LLC was founded on the 29th of December 1999 and granted NBFI license on the 14th of July 2000. The company is mainly engaged in the wholesale lending to savings and credit cooperatives. NETMON is also has an objective to improve operational policies and procedures and internal control system of SCC, to standardize its accounting and reporting, to provide them with professional and other training and to strengthen their capacity. In the scope of this objective we developed Accounting manual of Savings and Credit Cooperatives, Sample chart of accounts of Savings and Credit Cooperatives, Instruction for the preparation of financial statements and sample forms and Accounting forms to be used in the accounting of Savings and Credit Cooperatives. This was accomplished thanks to financial aid of UNDP, and participation of professionals from external audit firm. This manual have been prepared in accordance with the specific nature of savings and credit cooperatives activities and based on the International Accounting Standards as well as the following rules and procedures such as the Chart of accounts and sample procedures for accounts to be observed in activities of business entities and organizations, Methodology for preparation and presentation of financial statements of business entities and organizations, Sample procedures for preparing adjustments on financial statements of business entities and organizations, developed and approved by the Ministry of Finance and Economy, Accounting procedures for non-bank financial institutions approved by Mongolbank. By decree # 371 issued by ministry of Finance and Economy on the 6th of June 2002 Accounting manual of the savings and credit cooperatives, Sample chart of accounts for the savings and credit cooperatives and Instruction and sample forms for the preparation of the financial statements were approved from the above listed materials in the package of accounting regulations of Savings and Credit Cooperatives. Accounting policies, accounting process and preparation of financial statements of the savings and credit cooperatives should comply with these regulatory documents. NETMON recommends savings credit cooperatives to use proposed detailed day-to-day bookkeeping and accounting forms, and internal control procedure in its activities. We hope that accounting of SCC will be standardized and control of the activities of cooperatives by its members and the other interested parties be improved as a result of using this package of accounting manual and forms. We also hope that it will make a positive contribution into the process of producing and providing interested parties with standardized, reliable and transparent information. This accounting manual is developed for the cooperatives engaged solely in savings and credit activities. Mixed operations cooperatives can use this manual for their savings and credit business. We owe a debt of gratitude to the UNDP Microstart Mongolia project, staff of NETMON, auditors of NIMM AUDIT LLC Mr. D.Batjargal and S. Suhbat, staff of finance and accounting division of XacBank, staff of accounting, controlling and methodology division of the ministry of Finance and Economy and cooperatives MONCORD, BYSAN, CIDAN from Ulaanbaatar, MON-EEL from Bayanhongor aymag. We acknowledge that without financial and
professional support of these people and organizations this initiative would have been impossible to be accomplished.
You can have an access into the manual and forms by visiting UNDP web site and send your http://www.un-mongolia.mn/~undp/reports/microfinance/ recommendations to NETMON.
NETMON LLC
CONTENTS
CHAPTER 1. ACCOUNTING MANUAL OF SAVINGS AND CREDIT COOPERATIVES 1.1 General provision 1.2 Accounting for and presentation of assets 1.3 Liabilities 1.4 Cooperative owners equity 1.5 Income and expenses 1.6 Accounting for and presentation of foreign currency 1.7 Accounting for and presentation of leases CHAPTER 2 SAMPLE CHART OF ACCOUNTS FOR SAVINGS AND CREDIT COOPERATIVES MODEL MANUAL CHAPTER 3. INSTRUCTION FOR PREPARATION OF FINANCIAL STATEMENTS OF SAVINGS AND CREDIT COOPERATIVES 3.1. 3.2. 3.3. 3.4. 3.5. 3.6. 3.7. General Provisions Balance Sheet Income Statement Statement of Changes in Owners Equity Statement of Cash Flows Accounting policies, additional notes Forms of Financial Statements 62-63 63-68 68-69 70 70-72 73-74 75-80 1-2 2-27 28-34 35-37 38-45 46-49 50-51
52-61
CHAPTER 4. 4.1. 4.2. 4.3. 4.4. Sample of the accounting forms Subsidiary and general ledger forms Journal forms of manual accounting Flow chart of operations of Savings and Credit Cooperative. 81-87 88-113 114-118 119- 126
CHAPTER 5. MODEL PROCEDURES FOR INTERNAL CONTROL, PROCEDURES FOR CONDUCTING CONTROL ACTIVITIES
127-142
DECREE OF THE MINISTER OF MINISTRY OF FINANCE AND ECONOMY December 6, 2002 # 371 Ulaanbaatar city
Approval of the manual
The following decisions are made in connection with the implementation of clause 8.1 of the Accounting law. 1. Herein approving Accounting manual of Savings and Credit Cooperatives by the disclosure 1, Sample chart of accounts of Savings and Credit Cooperatives by the disclosure 2 and Instruction for the preparation of financial statements of Savings and Credit Cooperatives by the disclosure 3. 2. Herein appointing heads of economy and industry units of aimag, city and district governing offices and heads of tax offices to organize activities towards adapting the approved manual in the operation of Savings and Credit Cooperatives from the 1st of January 2003. 3. Herein appointing Accounting Policy, Methodology and Monitoring Division /L. Dondog/ of the Ministry of Finance and Economy to provide professional and methodological support and monitor its implementation.
Minister
/CH.ULAAN/
CHAPTER ONE
Disclosure #1 to the resolution #371 of the Minister of Finance and Economy from year 2002
ACCOUNTING MANUAL OF SAVINGS AND CREDIT COOPERATIVES A. ONE. GENERAL PROVISION 1. SCC should conduct its accounting, prepare financial statements and its disclosure based on this instruction of chart of accounts. 2. SCC should prepare chart of accounts which complies with IAS and shows specifics of its operation. Also SCC should maintain off balance sheet accounts to assure double check. 3. SCC should have double entry accounting. 4. Accounting transactions should be measured by Mongolian national currency units, tugrug, mungu. 5. SCC should prepare its accounting policy based on this manual. 6. This manual is developed for the cooperatives engaged solely in savings and credit activities. Mixed purpose cooperatives can use this manual for their savings and credit business.
TWO. ACCOUNTING FOR AND PRESENTATION OF ASSETS Assets are economic resources or benefits owned or controlled by the cooperative that can be measured by money. In accounting, assets are classified as current and non-current.
B. CURRENT ASSETS Current assets are cash, short-term investments, loans, receivables and inventories that are spent for ordinary operations or used up for other purposes within one year, or the operating cycle of the cooperative, whichever is longer. 2.1 Cash 2.1.1 Cash includes: Cash in vault in local currency and foreign currency, cash in bank accounts and accounts in financial
institutions, other payment instruments and cash equivalents. 2.1.2 Valuation
Cash and cash equivalents are recorded at their nominal value. Monetary units of other countries are considered as foreign currencies. Foreign currency transactions are double recorded in foreign currency or converted into local currency at the current official rate of Mongolbank. Cash balances in foreign currency are revalued for exchange rate changes each time when the official exchange rate changes. 2.1.3 Reporting on Financial Statements Cash is reported on the balance sheet at the beginning of the group Current Assets. 2.1.4 Cash recording: Cash in vault Cash in vault includes national and foreign country paper money, coins and checks in foreign currencies and is used in day-to-day operations of the cooperative. Depending on the purpose, cash in vault is organized by the type such as cash for core operations and cash for operating expenses, and cash in local currency and foreign currency. Transactions of cash in-flow by cash (repayment of loans, payment of interest) are recorded with the following entries: Debit: Cash in vault in local currency and foreign currency Credit: Relevant account (for example: loan account, or interest income Transactions of cash-outflow by cash (disbursement of loans) are recorded with the following entries: Debit: Relevant account (for example: loan account) Credit: Cash in vault in local currency and foreign currency Cash in vault must be counted on a regular and random basis. Detected differences must be reconciled and the balance of cash in vault must be adjusted accordingly. If a cash surplus is detected during the verification, the following entries are made for the amount of the surplus: Debit: Cash in vault in local currency and foreign currency Credit: Record in the account Payables, then recognize as income from transactions or return if the owner is found. If there is a cash shortage: Debit: Shortage and pilferage Credit: Record in the account Cash in vault in local currency and foreign currency, then have it repaid by the guilty party or recognize as the cooperatives loss.
A penalty can be imposed when the person in charge is repaying the cash shortage. In this case, the following entry is made for the amount of the penalty: Debit: Receivables Credit: Record in the account Penalty income When the person in charge repays the cash shortage and the penalty: Debit: Cash in vault in local currency and foreign currency for the total amount repaid Credit: Shortage for the amount of the shortage Credit: Penalty income for the amount of the penalty Petty cash funds (imprest account) represent a small amount of cash for payment of small current expenses of the cooperative that is handled by someone other than the cashier or the accountant. The cooperatives internal rules shall determine the size and purpose of the petty cash fund and the procedures for its establishment, disbursement and control. Depending on the need, the cooperative can establish several petty cash funds. The petty cash fund is recorded in the cash in vault account in an individual account. The following journal entry is made when the petty cash fund is first established or its amount is changed: Debit: Petty cash fund (for example: 1101002) Credit: Cash in vault, or current account No entry is made when an expense transaction is made from the petty cash fund. Before replenishing the petty cash fund, the employee who is in charge of this fund will prepare a report on the funds use and submit it for review to the senior officer. The senior officer will match the funds use report with the supporting documents and verify whether the uses have been made according to the approved budget and procedures. Then, the senior officer will give an authorization to replenish the petty cash fund. Based on this authorization, the employee in charge of the petty cash fund will submit to the cashier the documents of the expenditures and receive cash equal to the amount spent. When the petty cash fund is replenished and replenishment is made from cash in vault: Debit: Relevant expense account Credit: Cash in vault Cash in banks and non-bank financial institutions A savings and credit cooperative can open current and deposit accounts in banks and nonbank financial institutions based on a contract signed with a particular bank or non-bank financial institution as well as the decision from the cooperatives management. Cash
transactions from bank accounts must be verified against the supporting documents and the balance must be reconciled regularly. Current accounts are classified as follows: for operating expenses and for core activities, in local currency and in foreign currency. Current accounts: If a cooperative deposits cash in its current accounts: Debit: Current account in local currency, foreign currency in banks and non-bank financial institutions Credit: Cash in vault in local currency and foreign currency When non-cash income is made to current accounts in banks and non-bank financial institutions: For example, when cooperative members make deposits through banking institutions: Debit: Current account in local currency and foreign currency in banks and non-bank financial institutions Credit: Deposit accounts When cooperative members make non-cash payments of their loans and its interest: Debit: Current account in local currency and foreign currency in banks and non-bank financial institutions Credit: Loans, interest income, interest receivable When expenses are made from current accounts in banks and non-bank financial institutions: For example, when cash in vault is replenished from current accounts: Debit: Cash in vault in local currency and foreign currency Credit: Current account in local currency and foreign currency in banks and non-bank financial institutions When a loan is disbursed in a non-cash form or when expenses are made from members deposits: Debit: Loans, or members deposits Credit: Current account in local currency and foreign currency in banks and non-bank financial institutions When a cooperative pays operating expenses, accrued payables and other payables from current accounts: Debit: Relevant expense account, or payables
Credit: Current account in local currency and foreign currency in banks and non-bank financial institutions Deposits: A savings and credit cooperative can open deposits by signing contracts with banks and nonbank financial institutions in order to put free cash in financial turnover and earn interest income. When deposits are opened by depositing cash, or by transferring from the current account in the amount stated in the contract: Debit: Deposits in local currency and foreign currency in banks and non-bank financial institutions Credit: Cash in vault in local currency and foreign currency, or current accounts in local currency and foreign currency in banks and non-bank financial institutions The cooperative will earn interest on deposits in banks and non-bank financial institutions at the rate stated in the contract and record it as income for the reporting period. If interest is not received in cash, interest income will be recorded as accrued at the end of the reporting period. Debit: Accrued interest receivable Credit: Interest income on deposits When interest is paid in cash: Debit: Current account in local currency and foreign currency in banks and non-bank financial institutions, or deposits (by the total amount paid) Credit: Accrued interest receivable (By the amount accrued) Credit: Interest income on deposits (By the amount attributable to the reporting period, which is not recorded as accrued) When the term of the deposit expires, or the cooperative withdraws all the cash from the deposit account: Debit: Cash in vault in local currency and foreign currency, or Current account in local currency and foreign currency in banks and non-bank financial institutions Credit: Deposits in banks and non-bank financial institutions
2.2 Loans 2.2.1 Loans and related items Loans represent cash that is lent by the cooperative to its members on repayable terms, for a specific purpose and term, with interest and collateral (or guarantee).
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Interest is a payment for using the loan to be paid at the rate and in the amount stated in the loan agreement. Loan agreement is a legal document defining the rights and obligations of the cooperative and the borrower (members of the cooperative) with respect to the loan during the period from issuance of the loan until payment. Reserve for the probable Loan losses a fund to cover the risk of probable non-payments of the loan portfolio established on the basis of a loan classification considering the repayment schedule, term, collateral, guarantee, reliability and quality of the loans issued. 2.2.2 Valuation The loan principal is valued at the net realizable value or the difference between the nominal value and the loan loss provision. Loans disbursed in foreign currency will be converted into local currency at the current official exchange rate of Mongolbank. Interest receivable will be recorded at the amount unpaid. 2.2.3 Reporting on the balance sheet Loans are reported on the balance sheet in the group Receivable after Short-term investment in the caption Loans at the net amount after the deduction of the reserve for the probable loan loss. Interest will be reported as income for the reporting period. Accrued interest receivable will be reported on the balance sheet in the group Receivable. The cooperative will disclose in its financial statements explanations on the reserve for the probable loan loss, accrual stopped loan as well as interest income that could have been earned on these loans. 2.2.4 Control Loans will be recorded in individual accounts for each borrower. The loan principal and the amount of interest receivable will be recorded in separate sub-accounts. Sub-account entries must be supported by source documents. Interest on loans will be accrued. Interest receivable that has been calculated since the canceling of the accrual will be recorded in an off-balance sheet account. The cooperative must keep the original copies of the loan file, collateral agreement, guarantee and other relevant documents and materials.
The cooperative must exercise regular control on the physical state of the assets submitted as loan collateral. The cooperative will regularly check the calculation of interest and penalty on loans. The balance on the loan account must be regularly reconciled and adjusted. 2.2.5 Loan recording The cooperative must have special procedures on lending activities. When terms and conditions of these procedures are fulfilled and loans are issued, the following entries will be made: Debit: Relevant loan account Credit: Cash account When the borrower repays the loan principal: Debit: Cash account Credit: Relevant loan account Loan interest Loan interest must be paid according to the terms and conditions and within the deadline stated in the loan agreement. Interest will be accrued and recorded at the end of each month at the rate stated in the loan agreement, regardless of whether it was paid in cash or not When interest is accrued and recorded at the end of each month: Debit: Accrued interest receivable Credit: Interest income When the borrower pays accrued interest in cash: Debit: Cash account Credit: Interest receivable When the borrower pays interest attributable to the current reporting period, which has not been recorded as accrued, this interest will be recorded directly as interest income. The following entries are made: Debit: Cash account Credit: Interest income As set forth in the internal rules of the cooperative, interest accrual will be stopped if the loan principal and the interest are not paid as set forth in the loan agreement, the cooperative decides not to extend the loan term, there is full evidence that the loan will not be repaid. The following entry for the amount of accrued interest receivable will be made to decrease interest income if there is evidence that interest receivable will not be paid and relevant decisions become effective. Debit: Decrease in interest income
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Credit: Interest receivable This amount will be recorded as income in the off-balance sheet account No. 9921 Interest after cancellation of the accrual. Loan interest will be calculated and recorded further on in this account until the loan is repaid, or the amount to be repaid is determined by the court decision. If the amount repaid is less than the amount to be paid according to the loan agreement, the cooperative will decide according to its loan policy whether to deduct the amount from the loan principal or from the interest. Loans will be considered as past due if the loan principal is being paid as set forth in the loan agreement, however, interest payments are not made according to the schedule. The cooperative must take all possible actions to have the borrower repay the interest amount recorded in the off-balance sheet account Interest after cancellation of the accrual. When accrual stopped interest is repaid, the following entries are made: Debit: Cash account Credit: Interest income It will be recorded directly as interest income and the amount repaid will be deducted from the off-balance sheet account No. 9921. Loan classification recording Based on the procedures approved by Mongolbank and taking into consideration the criteria used by commercial banks and other non-bank financial institutions, savings and credit cooperatives must develop and abide by the internal rules on the Classification of loans, establishment and utilization of the loan loss provision that are suited to their activities. These rules must include specific criteria, procedures and categories for classification of loans taking into consideration the term and quality of the loans issued. As set forth in the rules, past due loans will be transferred to the account Past due loans and the following entries will be made: Debit: Past due loans Credit: Standard loans As set forth in the rules, past due loans and their interest will be transferred to the next category if they are not repaid. The category will be reduced as follows: Debit: Sub-standard loans Credit: Past due loans Similar entries will be made to record the loan in the appropriate category each time when the loan category changes. When a non-performing loan and its interest are repaid, the quality of the loan improves and the category is upgraded as follows:
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Debit: Past due loans Credit: Sub-standard loans Similar entries will be made to record the loans in the appropriate category each time when the loan category is upgraded. Loan loss provision recording According to its internal rules, the cooperative must estimate at the established percentage the loan loss provision expense for each loan category. The following entries are made: Debit: Provisioning expense for probable loan Losses Credit: Loan loss provision At the end of each month, the cooperative must re-classify the loans and re-establish the loan loss provision. If the provision established earlier becomes insufficient, entries similar to those stated above will be made to increase the provision. However, if the quality of the loan portfolio improves, or the total loan portfolio decreases, and the amount of the loan loss provision exceeds the appropriate amount to be established, the following entries will be made for the excess amount: Debit: Loan loss provision Credit: Decrease in loan loss provision expense If the cooperative issues an official decision to write off the loan through the loan loss provision in accordance with the rules on the Classification of loans, establishment and utilization of the loan loss provision, the following entries are made: Debit: Loan loss provision Credit: Bad loans Loans that are written off the book through the loan loss provision will be recorded in the offbalance sheet account No. 9920 together with relevant documents and materials. The cooperative will continue the activities to have the loan repaid. In case the loan is repaid, the following entries are made and the loan amount is deducted from the off-balance sheet account No. 9920: Debit: Cash account Credit: Other income 2.3 Short-term investments 2.3.1 Components of short-term investments Short-term investments include marketable securities that have been purchased in order to get a return on it. They must have the following characteristics: be marketable;
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if necessary, be convertible to cash within one year, or an operating cycle, whichever is longer. Marketable securities represent securities that bring interest income such as Government bonds and Mongolbank securities. Generally, they are convertible to cash. Therefore, they are reported on the balance sheet as the third caption in the current assets after cash and loans. There are two types of marketable securities: 1) stock and 2) marketable debt securities. Marketable securities must be ready to be sold directly at the price established on the market. Securities that are not readily available for sale, or long-term investments are not current assets. 2.3.2 Valuation Investments in bonds and marketable securities are accounted for and presented under different standards. Short-term investments in bonds are reported at the cost and gains and losses are recognized when the investments are sold. However, investments in marketable securities are reported on the investors balance sheet at the lower of the total cost of the securities portfolio or the current market value. If the market value of the securities portfolio falls lower than the cost, this decrease is recorded on the income statement as a loss. Adjustments are made until the market value of the portfolio increases and equals the cost. The market value increase in excess of the cost is not reflected on the income statement. 2.3.3 The following journal entries are made: At the time of purchase (at the cost incurred during acquisition): Debit: Commercial securities or Stock Credit: Relevant cash accounts At the time of recording the interest accrual on bonds: Debit: Securities accrued interest receivable Credit: Securities interest income At the time of receiving the interest income in cash: Debit: Cash Credit: Securities accrued interest receivable When the cost of marketable securities (or stock) is in excess of their value: Debit: Loss from securities valuation discount Credit: Ownership securities valuation discount When investments in bonds are disposed of with a gain:
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Debit: Cash Credit: Commercial securities Credit: Income from securities trading When investments in bonds are disposed of with a loss: Debit: Cash Debit: Loss from securities trading Credit: Commercial securities If stock is disposed of with a gain: Debit: Cash Debit: Stock valuation discount Credit: Stock Credit: Income from securities trading If stock is disposed of with a loss: Debit: Cash Debit: Stock valuation discount Debit: Loss from securities trading Credit: Stock 2.4 Other Assets Owned 2.4.1 Components of other assets owned Other assets owned are not related to the cooperatives activities and represent only the assets that have been acquired from the borrower for the purpose of paying off the borrowers debt. 2.4.2 Valuation Other assets owned are reported at the lower of the market value or the total sum of the related loan and interest payment. Gains and losses from the disposal of other assets owned are included in net profit or loss for the current reporting period. 2.4.3. Reporting on the balance sheet Other assets owned will be reported in the balance sheet in group Other current assets. 2.4.3 Recording of other assets owned When a savings and credit cooperative first issues a loan, it shall record the assets submitted as collateral in the off-balance sheet account No. 9902 at the reasonable market value or, in case of immovable assets, at the value written on the state registration certificate, based on the loan and collateral agreement with the borrower.
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According to the loan and collateral agreement, the cooperative shall receive the title to the collateral assets in payment of the loan (interest) based on the mutual agreement with the borrower or at the decision of the court. At the time of acquisition, these assets are removed from the off-balance sheet account No. 9902 Loan Collateral Assets and recorded at the lower of the market value or the total sum of the related loan and interest payment. Debit: Other assets owned Credit: Related loan account (by the sum of the loan principal) Credit: Loan interest income or Interest receivable (by the sum of interest paid) If the market value of the assets received in payment of the loan is higher than the loan principal, the difference shall be deducted from the interest payment. If the accrual of interest is stopped, the amount of interest paid shall be deducted from the off-balance sheet account No. 9921. If the market value of other assets owned is substantially higher than the total amount of the loan and interest payment, the cooperative and the borrower shall mutually agree that the difference be returned to the borrower when the assets are disposed of. If the value of assets is lower than the amount of the loan and interest payment, other assets owned shall be recorded at the market value. After paying off the loan and interest, the cooperative shall continue to take actions to collect the outstanding loan or interest payment. Expenses incurring during storage, protection and sale of other assets owned shall be recorded as expenses for the reporting period. The borrower can pay for a certain portion of these expenses. Debit: Current expenses for other assets owned Credit: Cash or other relevant account The savings and credit cooperative must include in its procedures for issuing loans, classifying loans and establishing loss provisions specific clauses on terms of acquisition of other assets owned as payment for the loan, their valuation, classification, valuation discount to adjust to the change in their market value. Depending on the nature of and demand for other assets owned, a valuation discount will be made and reported as an expense for the reporting period if the reasonable selling price falls down. Debit: Other assets owned valuation discount expense Credit: Other assets owned valuation discount If other assets owned are disposed of at the price higher than the book value: Debit: Cash account Credit: Other assets owned book value Credit: Other income by the amount in excess of the book value
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According to the above mentioned, if other assets owned are disposed of at the price that is higher than the expenses incurred during selling the collateral assets and paying off the loan principal, interest and penalty and the agreement stipulates that the surplus will be returned to the borrower, then this amount will be reported not as income, but as a payable. Debit: Cash account Credit: Payables If other assets owned are disposed of at the price that is lower than the book value, the transaction will be recorded at the sales price ad the difference will be recorded as the cooperatives loss. Debit: Other assets owned valuation discount (by the amount of loss) Debit: Cash account (by the sales price) Credit: Other assets owned (by the book value) If the quality of other assets owned deteriorates or they become unable to satisfy the requirements and needs due to delays in sales, they will be written off the book based on the relevant decision made at the meeting of the cooperative governing board and the loan committee according to the internal rules.
2.5 Inventories 2.5.1. Components of the inventories Materials and other valuable items as well as forms of all types that are required for day-today ordinary operations of the cooperative are recorded in the account No. 1501 Inventories until they are used up, at which point their cost is released to the income statement and reported as an operating expense. 2.5.2. Valuation Inventories shall be recorded at the cost of purchase. 2.5.3. Reporting in the balance sheet Inventories are reported in the balance sheet in group Other current assets 2.5.4. Recording of inventories The cooperative will determine in its accounting policy the methods for recording and expensing inventories. The cooperative will abide by the no warehouse principle, which means that inventories will be put to use directly.
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The accountant will keep a detailed journal for inventories and match the transactions and balances with the trial account and the journal of the inventory keeper. The inventory keeper will be responsible for inventories. The inventory keeper will keep an inventory journal, match transactions with balances, receive inventories against relevant documents and release them to employees based on the request list authorized and signed by the senior officer. The inventory keeper will prepare an inventory report at least once a month, based on which the accountant will make an expense transaction. Certain valuable items such as special forms, securities and payment instruments will be stored in the counter and double recorded in off-balance sheet accounts. At the time of purchase, inventories will be recorded with the following entries based on the income voucher prepared by the inventory keeper according to the suppliers invoice and sales voucher. Debit: Inventories Credit: Cash account, or payables When an expense is made based on the inventory keepers report, the following entries are made: Debit: Relevant expense account Credit: Inventories Relevant entries are double recorded in the detailed journal. 2.6. Other receivables 2.5.1 Components of Other Receivables Receivables from works and services other than loans; Shortage and pilferage Accrued interest receivable Inter-branch settlement receivables
2.5.2 Valuation Receivables, shortage and pilferage are reported at the net agreed upon and realizable value. The receivables balance shall be valued deducting the allowance for bad debts and other adjustments. Receivables in foreign currency shall recorded after converting it into local currency at the official rate of Mongolbank at the balance sheet date. Accrued receivables shall be recorded at the amounts accrued. 2.5.3 Reporting on the balance sheet Other receivables are shown on the balance sheet in group Receivables.
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Receivables The following receivables shall be recorded in the account No. 1602: Receivables for assets other than loans due from individuals, legal entities and employees Receivables due from others related to cash and inventories.
Receivables balances in the account No. 1602 are temporary and must be closed each time the final settlement is made. Receivables must be recorded for each individual or legal entity in the individual accounts. The cooperative must exercise regular control over the collection of receivables. When receivables are created: Debit: Receivables (1602) Credit: Asset account or income account When receivables are paid: Debit: Cash account or other assets account Credit: Receivables (1602) Receivables other than loan receivables or receivables form core activities shall be recorded at their realizable value. No bad debt allowance is provided for these receivables. Shortage and pilferage If a discrepancy is detected between the amount of cash available in vault and the cash balance on the book while reconciling cash in vault during the counting or at the end of the day, the amount of discrepancy will be recorded either in Shortage and pilferage (1605) or Payables (2502). The balance of cash in vault will be adjusted accordingly. If the reason or the guilty party is found, the cooperative will make an appropriate transaction to close this account according to relevant decisions. The related entries are described in 1.4 of the category Cash. Inter-branch settlement The cooperative will record transactions with its branches and units in the accounts No. 1611, 1612, 2511, 2514 named Inter-branch settlement. Receivables and payables arising from inter-branch settlement will be recorded in individual accounts opened for each branch and will be offset at the end of reporting period. It will be prohibited to record in this account anything else than inter-branch balances. Receivables and payables arising from inter-branch settlement will be recorded separately in foreign currency and in local currency. For example, the following entries are made when cash is transferred to the branch:
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At the headquarters: Debit: Inter-branch settlement receivables Credit: Cash in vault At the branch: Debit: Cash in vault Credit: Inter-branch settlement payables At the end of each month, receivables and payables accounts of the branch will be offset to determine net receivables and payables. Debit: Inter-branch settlement payables Credit: Inter-branch settlement receivables Inter-branch payments will be regularly adjusted and reported on the balance sheet at the net amounts. 2.7. Prepaid expenses ant settlements 2.7.1. Components of prepaid expenses and settlements Deferred charges Prepaid expenses Prepaid settlements Prepaid taxes 2.7.2. Valuation Prepaid settlements and Prepayments shall be recorded at the amounts paid. 2.7.3. Reporting on the balance sheet Prepaid expenses and settlements should be reported on the balance sheet in the group Other current assets 2.7.4. Recording of the prepaid expenses and settlements Prepaid settlements Prepaid social security withholdings, advances for unreceived goods and services and prepayments other than per diem that will be recognized in the next period will be recorded in the account No. 1651 Prepaid settlements. After completing the settlements and payments with relevant entities and individuals, the cooperative will made closing entries to the related accounts. When prepayments and cash advances are made:
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Debit: Advances and prepayments Credit: Cash account When settlements are completed and the closing entries are made: Debit: Asset or expense account Credit: Advances and prepayments As to the account Prepaid settlements, an individual account will be opened for each employee and a detailed journal will be kept. Deferred charges Per diem advances that are paid to employees for performing their official duties or for traveling overseas on business trips, or attending courses, schools or seminars, based on the managements decision, shall be recorded in the account No. 1652 Deferred charges. When cash advances are made: Debit: Deferred charges Credit: Cash account Based on receipts evidencing the expenditure of advanced money, the following closing entries are made to the account Deferred charges: Debit: Related expense or asset account Credit: Deferred charges As to the account Deferred charges, individuals accounts will be opened and a detailed journal will be kept for each employee who received an advance. The outstanding balance of the advance will be adjusted each month based on the supporting documents. In case, advanced money is in surplus: Debit: Cash in vault Credit: Deferred charges If the amount spent is more than the advance received, the cooperative will find out the reason for overspending and make a decision whether to issue more money or not. A related transaction will be made. Prepaid expenses If the cooperative prepays the operating expenses, they will be accrued on the account No. 1653 Prepaid expenses and the reporting periods portions shall be transferred to the relevant expense account. At the time prepaid expenses are made: Debit: Prepaid expenses Credit: Cash account
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The following entry is made at the end of the reporting period for the amount attributable to this period: Debit: Relevant expense account Credit: Prepaid expenses
B. Non-Current Assets Non-current assets include fixed assets, intangible assets, long-term investments and receivables that are used in the cooperatives activities for one and more years, the reasonable useful life of which is limited.
2.8 FIXED ASSETS 2.8.1 Components of fixed assets Fixed assets include physical assets that are used for more than one year, the reasonable useful life of which is limited, that are not intended for sale in the course of ordinary business operations, that gradually use up their original cost through depreciation. These assets include: !" Immovable assets such as land and industrial site for which depreciation and amortization is not calculated; !" Immovable fixed assets (buildings and facilities) !" Transport means !" Computer equipment !" Furniture !" Other fixed assets (assets that have the nature of fixed assets, the useful life of which is less than 10 years, but is longer than 1 year should recorded in this caption). 2.8.2 Book value composition Fixed assets are booked at their original cost, which includes the purchase price, plus all the costs incurred during transportation and installation as well as customs duties and value added taxes. The cost of fixed assets being built or constructed includes the cost of labor and building materials, expenses for digging out the foundation and other relevant additional expenses as well as fees paid to the construction contractor. The cost of assets acquired for a lump-sum purchase price must be allocated for each asset acquired based on its market value. If assets are acquired by a trade-in transaction, these assets are recorded at the market value of the old assets that have been traded-in.
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Assets acquired as a donation shall be recorded at their market value. 2.8.3 Valuation Fixed assets are recorded at the cost (or the net book value) that remains after deducting from the original cost of an asset the accumulated depreciation on that asset. 2.8.4 Reporting on the balance sheet Fixed assets are reported on the balance sheet in the first caption of the category Noncurrent assets at the net book value calculated as the difference between the original cost and the accumulated depreciation. 2.8.5 Accounting for fixed assets The cooperative must assign a specific number to each fixed asset and must keep a separate file for fixed assets. The number of an asset that has been written off the balance sheet will not be re-assigned. Fixed assets must be counted at least once a year and verified against their net book values on the balance sheet. Purchase and installation of fixed assets The following entries are made for the amount of financing associated with purchasing and installing the buildings and facilities: Debit: Fixed assets financing Credit: Cash account or payables The following entries are made for the amount of the cost of the building based on the certificate that the building is put into operation: Debit: Buildings and facilities Credit: Fixed assets financing Buildings and facilities are recorded in the account No. 1704 Fixed assets financing until they are put into operation. This account can have an active balance over several accounting periods. It is prohibited to record in this account anything else than the costs associated with fixed assets financing that are approved by the cooperatives management. Blueprints and drawings for each building or facility will be appraised one by one and recorded by opening an individual account in the off-balance sheet account No. 9911 Valuable Items in Storage. Thus, blueprints and drawings are stored. Other fixed assets shall be recorded by adding and accruing to the purchase price the costs associated with transportation and installation plus customs duties and value added taxes. Debit: Furniture, transport means or Computers, equipment Credit: Cash account or payables
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If fixed assets are acquired by lease: Debit: Fixed assets Credit: Financial lease payables When paying interest on the lease: Debit: Other interest expenses Credit: Cash account If interest on the lease is not paid in cash, it will be accrued at the end of each accounting period and financial lease payables shall be recorded at the increased amount: Debit: Other interest expenses Credit: Financial lease payables Depreciation of fixed assets With exception of undepletable assets, depreciation is calculated for all other assets on the original cost over the reasonable useful life and is systematically released to the expenses. The amount to be depreciated shall be determined as the original cost of a fixed asset (or the original cost including all the costs such as the revaluation surplus or the amount of additional costs) minus its estimated salvage value. In determining the reasonable useful life of a fixed asset, the cooperative shall consider the following: 1) time period during which the cooperative plans to use the assets to be depreciated; 2) quantity and amount of products and services to be produced using the assets to be depreciated; 3) managements decision; 4) useful life of a particular asset determined by the manufacturer. Depreciation shall be calculated over the assets reasonable useful life by one of the depreciation methods and the amount to be depreciated shall be allocated to each accounting period. The cooperative shall select and use one of the depreciation methods for accounting purposes. Regardless of tax computing terms, the cooperative shall consistently use the method first selected over the reporting period of its activities. There are the following depreciation methods: 1. Straight-line depreciation method; 2. Units of production method; 3. Double declining balance method; 4. Sum of the years digits method. The cooperative must determine in its accounting policy the depreciable life and the depreciation method for each fixed asset or category of assets. Depreciation shall be calculated each month at the rate chosen and the depreciation expense shall be recognized in the current reporting period.
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Debit: Depreciation expense Credit: Accumulated depreciation It is prohibited to avoid calculating depreciation in the current reporting period for gain or loss purposes. Depreciation will not be calculated again for a fixed asset that has been used up through depreciation. If an useful life other than that set forth in the tax law is used for calculating depreciation for a particular fixed asset, depreciation shall be calculated separately according to the tax law and the difference in the depreciation expense shall be included in the income tax reporting to calculate taxes. Sales and Write-Offs of Fixed Assets If there is a need to sell excess assets, or to write off or replace old fixed assets with new equipment, the assets shall be sold or written off the book based on the decision of the cooperatives governing body and the directors decree. If an asset is written-off on a day other than the final day of the year, the calculation of depreciation will be cut off by the write-off day. The accumulated depreciation on that asset shall be deducted from the original cost of the asset to determine the salvage value. Debit: Accumulated Depreciation Credit: Fixed assets If an asset is written off from the book before it fully uses up its original cost through depreciation, the salvage value shall be reported as a loss: Debit: Loss associated with the write-off of the asset Credit: Original cost of fixed assets If an asset is sold at the price lower than the salvage value: Debit: Cash account, Receivables by the purchase price Debit: Loss associated with the write-off of the asset by the salvage value Credit: Fixed assets If an asset is sold at the price higher than the salvage value: Debit: Cash account, receivables by the purchase price Credit: Fixed assets by the salvage value Credit: Gain associated with the sale of the asset by the difference Repair and maintenance of fixed assets Routine maintenance expenditures and repair costs are not capitalized and are expensed in the current accounting period. Debit: Expenses for routine repairs of fixed assets
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Credit: Cash account or payables Repair costs are capitalized if they satisfy the following criteria: Extend the useful life of an asset; Increase capacity, or increase the assets profitability, or improve safety; Improve product quality. If any of these criteria is satisfied, the following entry is made to increase the original cost. The amount of additional cost will be depreciated over the years of the useful life, computed for these fixed assets, that remains unused. Debit: Fixed assets Credit: Cash account or Payables Revaluation of Fixed Assets a) Need for Revaluation Revaluation of fixed assets becomes necessary in the following cases: 1. A particular asset has fully recovered its original cost through accumulated depreciation, however, it is possible to continue using it; 2. The salvage value of a fixed asset has become materially different from its net reasonable value; 3. Revaluation is necessary due to reasons other than the ones mentioned above. In the above cases, revaluation of fixed assets shall be performed by a professional valuer. b) Reporting the revaluation surplus on the balance sheet If the salvage value of the asset increases as a result of revaluation, the increase will be shown in the category Owners Equity under the caption Revaluation Surplus. The decrease in value will be offset against the increase. However, the revaluation decrease should not exceed the revaluation increase for similar assets. If the revaluation decrease for similar assets exceeds the increase, it will be recorded as an expense as the revaluation loss. The following journal entry will be made when the revaluation decrease is reported as an expense: Debit: Extraordinary expense Debit: Accumulated depreciation by the amount attributable to the decrease in value Credit: Fixed assets If the decrease occurred during revaluation of similar assets has previously been recognized as an expense, then the increase as a result of revaluation shall be considered as a gain. The following journal entries will be made in this case: Debit: Fixed assets
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Credit: Extraordinary income When assets are written off or disposed of, the revaluation surplus becomes evident. Then, the revaluation surplus shall be transferred to and recorded in the Retained Earnings. The following journal entries will be made: Debit: Fixed assets revaluation surplus Credit: Retained earnings Revaluation of fixed assets shall not extend the useful life of assets. Therefore, the following adjustments are needed after the revaluation of fixed assets. 1. If assets that have fully recovered their original cost through depreciation are revalued: The future useful life of each asset or each asset category will be renewed. The depreciation method will be selected. The journal entries are: Debit: Fixed assets Credit: Fixed assets revaluation surplus 2. If assets are revalued due to reasons other than the one mentioned in 1: Accumulated depreciation will be adjusted. The remaining value shall be newly determined. The cost to be depreciated will be determined. If the revalued value represents the salvage value of the asset: i) the years used shall be deducted from the useful life of the each asset category and the future useful life shall be newly determined, then depreciation shall be calculated on the revalued cost. In this case, accumulated depreciation calculated previously shall be completed. ii) The original cost and accumulated depreciation for each asset category shall be simultaneously increased by the ratio of the salvage value before revaluation and the salvage value after revaluation, and the useful life shall remain unchanged. 1. The journal entries that will be made in the first case are: By the amount of accumulated depreciation that has been established prior to revaluation: Debit: Accumulated Depreciation Credit: Fixed assets By the difference between the revalued value and the salvage value before revaluation: Debit: Fixed assets Credit: Fixed assets revaluation surplus
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2. The journal entries that will be made in the second case are: Debit: Fixed assets Credit: Accumulated Depreciation Credit: Fixed assets revaluation surplus If the revalued value represents the revised original cost, the accumulated depreciation and the salvage value shall be simultaneously increased by the growth ratio of the original cost. The journal entries that will be made in this case will be similar to ii). Whether or not to deduct the depreciation calculated on the revalued cost from taxable income shall be decided as set forth in the income tax law effective at that time.
2.9 INTANGIBLE ASSETS 2.9.1 Components of intangible assets
Intangible assets represent assets that are not physically identifiable, that are used for a relatively long period of time, that provide its owner competitive advantages, preferred or special rights. Intangible assets include patents, goodwill, copyrights, licenses, trademarks, software, and formation expenses. 2.9.2 Cost reporting
Intangible assets are recorded at their original cost. The original cost includes the purchase price plus all the expenses incurred to get the intangible assets ready to use according to the purpose. A. Intangible assets that are purchased will be recorded at the purchase cost on the day of the purchase. B. Intangible assets that are created domestically will be capitalized by the amount of expenses incurred. C. If these assets have been traded-in for shares or other assets, they will be recorded at the market value of assets traded-in or at the market value of intangible assets, whichever is certain. 2.9.3 Reporting on the balance sheet Intangible assets are reported on the balance sheet in the second caption of the category Non-Current Assets by the difference between the original cost and the accumulated depreciation. 2.9.4 Recording intangible assets By the original cost when intangible assets are purchased or developed:
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Debit: Intangible assets Credit: Cash account or Payables The cost of intangible assets is amortized and expensed over the entire useful life. The cooperative must determine in its accounting policy the period over which the depreciation charges are to be calculated. However, depreciation on intangible assets can be calculated and established for the period not longer than 40 years according to the rules issued by the Committee on Financial Accounting Standards. Intangible assets amortization shall be calculated at the end of each month and the original cost will be decreased. Debit: Intangible assets amortization expenses Credit: Intangible assets Intangible assets amortization expenses shall be reported in an individual account in the category Depreciation Expenses.
2.10
LONG-TERM INVESTMENTS
2.10.1 Components of long-term investments Long-term investments include the following non-current assets: Stock Investment securities Bond collateral Investments in assets in other entities Capital investments made for the purpose of increasing the value
2.10.2 Valuation Long-term investments are recorded, mostly, at the cost of acquisition. As to long-term marketable ownership securities, if the market value decreases, the decrease must be determined by each investment and the loss from the decrease in the value of investments must be recognized and reported on the balance sheet. 2.10.3 Method of reporting The investor is considered to control the entity, if the investor owns more than 50% of the entitys shares with voting rights. In this case, the consolidation method is used. If 20%-50% of the shares are owned, the investor has no control, however, still has the ability to influence the operating and financial policies. Therefore, the capital method is used. If the investor owns up to 20%, investments will be reported at the lower of the cost or the market value.
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2.10.4 Recording the investments At the time of acquisition, the following journal entries will be made by each investment: Debit: Long-term investments (by the type of investment) Credit: Cash account Accrued changes in the long-term investments valuation discount are not reflected in the income statement. They are reported on the balance sheet separately in the category Owners Equity. At the balance sheet date, investments can be decreased or increased to their market value, however, this should not exceed the cost. The journal entries are: Debit: Long-term investments valuation unrealized loss Credit: Cost discount in excess of the market value of long-term investments
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THREE. LIABILITIES Liabilities are economic obligations of the cooperative before others. Liabilities include deposits from members and other entities, various other payables and prepaid incomes such as prepaid services fees for services that will be provided in the future. Liabilities are classified as: A. Short-term obligations that must be paid off by current assets or by creating a shortterm liability within one year, or an ordinary business operating cycle, whichever is longer. B. Long-term obligations that will not be paid off or satisfied by current assets within one year, or ordinary business operating cycle, whichever is longer.
3.1 DEPOSITS 3.1.1 Components of deposits
Deposits represent cash from the cooperatives members that are deposited with specific interest and term on the basis of a contract. According to its charter and other legal documents, the cooperative shall develop and abide by an internal procedure regulating the activities related to deposits. 3.1.2 Valuation Deposits shall be recorded at their nominal value. Deposits in foreign currency shall be double recorded in foreign currency and in local currency converted at the current exchange rate of Mongolbank. Gains and losses from the exchange rate fluctuations shall be reflected in the net profit for the reporting period. 3.1.3 Reporting on the balance sheet Deposits are classified by the type and are reported as the first caption in the category Liabilities. Accrued interest payables are shown on the balance sheet in the caption Other Liabilities. 3.1.4 Accounting for deposits Detailed individual sub-accounts shall be kept for each deposit holder. Transactions and balances shall be verified against the relevant trial account and account transactions shall be verified against the supporting documents. The cooperative will make transactions to re-classify the deposit or to adjust the interest accrual when the terms and conditions of the deposit agreement change. When members make cash deposits according to the contract:
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Debit: Cash account Credit: Relevant deposit When withdrawals are made from the deposit: Debit: Relevant deposit Credit: Cash account Accounting for interest on deposits Interest on the deposit shall be accrued on a monthly basis at the rate agreed upon in the contract between the cooperative and the deposit holder and reported as an expense for the current reporting period. The following entries will be made for the amount accrued: Debit: Interest Expense Credit: Accrued Interest Payables When the deposit account is closed, or the contract term for a time deposit expires, or at the year-end for a non-time deposit, accrued interest payables shall be transferred to the principal balance of the deposit if otherwise is not stipulated in the contract with the deposit holder. Debit: Accrued Interest Payables Credit: Relevant deposit If the contract term for a time deposit has been violated or the interest has been over-accrued due to other reasons, accrued interest payables shall be adjusted by the difference according to the internal procedure on deposits. Debit: Accrued Interest Payables Credit: Deposit interest expenses return
3.2 OTHER RESOURCES FROM NON-BANK (FINANCIAL INSTITUTION) INSTITUTIONS 3.2.1 Components of other resources from non-bank institutions Other resources from non-bank institutions include cash deposited by the cooperatives members as loan collateral and other assets deposited for other special purposes as well as non-cash payment instruments. 3.2.2 Valuation Other resources from non-bank institutions are reported at the nominal value. Resources in foreign currency shall be double recorded in foreign currency and converted into local currency at the official rate of Mongolbank at the balance sheet date.
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3.2.3 Reporting on the balance sheet Other resources from non-bank institutions are reported on the balance sheet as the second caption in the category Liabilities. 3.2.4 Recording Based on relevant clauses of the loan agreements with members (submitting as collateral) as well as other agreements and deals, the following entries will be made at the time of placing the deposit: Debit: Cash account or Deposits Credit: Resources from non-bank institutions The following entries are made at the time of returning, or making other payments at the request of the deposit holder provided that the contract obligations are fulfilled: Debit: Resources from non-bank institutions Credit: Cash account or Deposits When the collateral funds are acquired as a loan payment because the loan is past due: Debit: Resources from non-bank institutions Credit: Loans and Receivables, interest income
3.3 RESOURCES WITHDRAWN FROM BANKS AND NON-BANK FINANCIAL INSTITUTIONS 3.3.1 Components Resources withdrawn from banks and non-bank financial institutions include loans obtained from these institutions and other monetary assets deposited with the cooperative on the basis of a contract. 3.3.2 Valuation Loans and resources from banks and non-bank financial institutions are valued at the amount that is expected to be paid. Loans in foreign currency are double reported in foreign currency and in local currency converted at the rate of Mongolbank. Gains and losses from the exchange rate changes shall be reflected in the net profit or expenses for the reporting period. 3.3.3 Reporting on the balance sheet Resources from banks and non-bank financial institutions are reported on the balance sheet as the third caption in the category Liabilities and accrued interest payables are shown as Other Liabilities in the same category.
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3.3.4 Recording When the money is received based on the loan agreement signed with a bank or a non-bank financial institution: Debit: Cash account Credit: Loans from banks or non-bank financial institutions At the time when the loan payment is made: Debit: Loans from banks or non-bank financial institutions Credit: Cash account Recording interest Interest on loans received from banks or non-bank financial institutions shall be accrued on a monthly basis at the rate stipulated in the contract and reported as an expense for the reported period. Debit: Interest expenses paid to banks or non-bank financial institutions Credit: Accrued loan interest payables The following entries are made when paying the interest amount that is accrued or not accrued, attributable to the period during which the loan has been used: Debit: Accrued interest payables (by the amount accrued) Debit: Interest expense paid to banks and non-bank financial institutions (by the amount not accrued, that is attributable to the period) Credit: Cash account (by the amount paid) 3.5 OTHER LIABILITIES 3.5.1 Components of other liabilities Payables of accrued expenses other than social security withholdings, corporate and individual income taxes and those associated with internal transactions such as the purchase of assets, works or services; Payables of social security withholdings, corporate and individual income taxes and dividends; Prepaid income; Payables of other types; Accrued interest payables
3.5.2 Valuation Other liabilities are reported at the amount that is expected to be paid and accrued liabilities are valued at the amount accrued. Liabilities in foreign currency are double reported in
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foreign currency and in local currency converted at the official exchange rate of Mongolbank at the balance sheet date. 3.5.3 Reporting on the balance sheet Other liabilities are reported on the balance sheet as the fourth caption in the category Liabilities. 3.5.4 Recording Other liabilities are classified and recorded by major classifications. A detailed sub-account will be kept for each correspondent or payment receiver. Payables Short-term liabilities to business entities, organizations and individuals that are not related to the cooperatives core activities will be recorded in the account No. 2502. An individual subaccount will be opened for each business entity, organization or individual, and settlements will be made on a timely basis. When assets are acquired by an advance and when expenses are accrued at the end of the reporting period and reported as payables: Debit: Asset account or Expense account (for example, lease expenses 5237) Credit: Payables When liabilities are paid: Debit: Cash account Credit: Payables Social security withholdings and individual income taxes payable According to the relevant laws and regulations of Mongolia, the cooperative will compute social security withholdings and individual income taxes on salaries paid to employees and corporate income taxes on the cooperatives income. The cooperative will withhold the appropriate amount from employees salaries or will report it as an accrued expense for the reporting period. If these payments are prepaid in the middle of the reporting period, accrued payables and advances and prepayments accounts will be offset against each other and net receivables and payables at the end of the reporting period will be adjusted. The entries to these accounts are described in 16 of the fifth section of these procedures. Prepaid income The borrower may prepay interest regardless of whether the loan is used or not. This income is accrued and reported in the account No. 2506 Prepaid Income. Then, the amount attributable to the current reporting period will be recognized as income.
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For example, when the loan interest is prepaid: Debit: Cash account Credit: Prepaid income At the end of the reporting period, by the amount attributable to the current reporting period: Debit: Prepaid income Credit: Interest income Other payables Payments of temporary nature such as foreign transfers made by members through the cooperative or other payments received are recorded in the account No. 2510 Other payables and settlements. For example, if a foreign transfer is received in the name of the member, then the following entries are made based on the bank document: Debit: Current bank account in foreign currency Credit: Foreign transfer payables When the transfer is released to the owner, or when a payment is made at his/her request, or when the transfer is added to the deposit, the following closing entries are made: Debit: Foreign transfer payables Credit: Cash account, or members deposits. Entries to the accounts Dividends Payable and Income Taxes Payable are described in 14.4 and 16.3 of these procedures.
3.6 SECONDARY PAYABLES 2.1.1 Components of secondary payables Secondary payables include loans obtained for the period of more than 5 years from banks and financial institutions and long-term resources obtained on repayable terms from international and domestic cooperative promotion organizations for the purpose of expanding the cooperatives activities and increasing the loan resources. 2.1.2 Valuation Secondary payables shall be valued at the amount that is expected to be paid and long-term payables in foreign currency shall be double booked in local currency converted at the official exchange rate announced by Mongolbank on balance sheet date. 2.1.3 Reporting on the balance sheet
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Secondary payables shall be included in long-term liabilities of the Liabilities category on the balance sheet. 2.1.4 Accounting for secondary payables Liabilities shall be classified as liabilities in local currency and liabilities in foreign currency. Exchange rate adjustments in payables in foreign currency shall be made each time and included in net income of the accounting period. The payables shall be recorded in the individual sub-accounts by each creditor and reconciled with the balance of the trial account. When the loan is received in cash in accordance with the agreement the following entry shall be made: Debit: Cash Credit: Secondary payables When the payment is made in accordance with agreement: Debit: Secondary payables Credit: Cash The loan interest shall be computed and accrued every month in accordance with the agreement and shall be recorded as expenses of accounting period. Debit: Interest expenses paid to banks and financial institutions Credit: Accrued loans interest payable When making the payment of accrued interests of accumulated, but not reported loans: Debit: Accrued loans interest payable (at accrued amount) Debit: Interest expenses paid to banks and financial institutions (at non-accrued amount) Credit: Cash (at amount paid)
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FOUR. COOPERATIVE OWNERS EQUITY AND SHARE CAPITAL 4.1 COOPERATIVE OWNERS EQUITY AND SHARE CAPITAL 4.1.1. Items to be included in cooperative owners equity and share capital The cooperative members equity and capital is the summary of share capital and capital gained. The share capital is the total amount of investments contributed to the cooperative by its members for the use in business activities during a certain period. The capital gained is the capital increased as a result of business operations of the cooperative and the cooperatives total undistributed free balance. The cooperatives equity shall comprise of the following: - Share capital contributed by the members - Special purpose funds established from retained earnings (reserve, social development, training etc.) - Revaluation surplus - Long-term investment discount - Donations and grant - Retained earnings 4.1.1. Valuation The equity and share capital shall be reported at their nominal value. 4.1.2 Reporting on the balance sheet The reflection in the Cooperative owners equity part of the balance sheet shall be classified as follows: - Share capital - Other reserves 4.1.3 Accounting for cooperative owners equity Owners share capital The members share capital represents initial contributions of members, which is defined in the Charter of the Cooperative. The changes made in compliance with the laws and regulations and the decisions of the cooperatives governing body and the meeting of all members shall be reflected in share capital account (i.e. increase in share capital by recruiting new members, reinvesting dividends etc.).
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A detailed record of contributions made by each member shall be maintained which shall be reconciled with the trial account balance. When a member makes his/her contributions in the cooperative, the following entries shall be made on the basis of the decision of the authorized management to approve the membership and the document evidencing the contributions: Debit: Cash or other assets account Credit: Share capital When a member terminates his/her membership in the cooperative and withdraws his/her investment, the following entry shall be made on the basis of the decision of the governing body: Debit: Share capital Credit: Asset account Special purpose funds Special purpose funds shall be established from the retained earnings of the cooperative in order to develop the cooperative, make up for losses, meet social requirements of its members, enhance the knowledge and educational level of the members etc. The amount to be allocated to the funds and their expenditure shall be approved by the meeting of all members. When creating the special purposes funds from retained earnings on the basis of the decision of the meeting of all members: Debit: Retained earnings Credit: Reserve fund, Social development fund The fund shall be reentered into retained earnings account at the amount expended and closing shall be done. In parallel, related expenses shall be recorded. Those cooperatives, whose operations were unprofitable, shall not create these funds and the reserve fund shall be reduced by the amount of losses. Debit: Reserve fund Credit: Retained losses Net profit and loss for the accounting period The cooperative shall reflect its profit and loss for the accounting period in the profit and loss account for accounting year until they are allocated at the end of the accounting period. In accordance with the decision of the meeting of all members on the allocation of the profit for the respective accounting period the profit shall be allocated to the special purposes funds and the rest shall be distributed as dividends to members in accordance with Charter. The remaining part shall be recorded in retained earnings account.
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If the cooperative's operations were profitable, at the end of the year the amount of net profit shall be entered as follows: Debit: income and expenses summary Credit: Net profit/loss If the cooperative's operations were unprofitable, the following entry shall be made at the amount of loss at the end of the year: Debit: Net profit/loss Credit: income and expenses summary When transferring the rest of the net profit after distribution to the retained earnings account: Debit: Net profit/loss Credit: Retained earnings Accounting for dividends Dividends shall be distributed to the members from the cooperative's financial year profit based on their contributions and date of entrance into cooperative in accordance with the cooperative's Charter and internal regulations. When a decision made by the meeting off all members to distribute dividends, the following entry shall be made at amount announced: Debit: Retained earnings Credit: Dividends payable When the dividends are paid in cash: Debit: Dividends payable Credit: Cash in vault in local currency and foreign currency or local currency and Foreign currency current accounts with banks and non-bank financial institutions. A detailed record of dividends paid shall be maintained for each member. When the member wishes to increase the amount of his/her share capital by the amount of dividend received: Debit: Dividends payable Credit: Share capital Revaluation surplus In case the amount of share capital increases after the revaluation of fixed assets, the entry shall be made in revaluation surplus account #3105. The entering of the revaluation surplus is exhibited in paragraph 6.5
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FIVE. INCOME AND EXPENSES Income statement items Income statement is one part of the financial statements showing the operational performance during the accounting period and mainly comprises of income, expenses, gains and losses. Net income is the basic indicator for measuring the operational performance. Recognition of incomes and expenses The cooperative shall account for income and expenses on accrual basis. Under this basis, income and expense transactions are recognized when they occur and not as cash is received or paid. However, the entries of commissions and fees, which cannot be accrued, may be recognized on cash basis. 5.1 INCOME AND GAINS 5.1.1 Components of income and gains Income is inflows of assets and decreases of liabilities during the accounting period as a result of lending, service rendering and other activities. Other income and gains are net increase in equity as a result of all transactions and activities affecting the cooperative other than cooperative's unusual and casual operations or members' income or contributions. 5.1.2 Classification of income Depending on their nature (content), income and gains are classified as follows: A. From basic operations B. From non-basic operations C. From unusual operations Income from basic operations is classified as 1) interest bearing and 2) non-interest. 5.1.3 Accounting for income A. Income from core operations Interest income is the reward/price or counter payment received by the cooperative for the use of loans provided to its members or cash deposited at banks and financial institutions on the basis of specific agreements. The loan interest and interest income received from banks and financial institutions shall be accrued and recorded at the rate agreed upon with the respective institution or individual. Recording of interest income is reflected in paragraph 2 of Chapter Two.
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Income from service fees, membership fee and other charges received from the members shall be entered at the time they incur: Debit: Petty cash in local currency and foreign currency Current accounts with banks and financial institutions Credit: Respective income accounts B. Income and gains from non-operating operations Income from the operations of subsidiaries and other units not related to the cooperatives basic operations and income and gains from casual operations should be included in income from non-basic operations. For instance: When registering the income from subsidiary: Credit: Cash or Receivables Debit: Other income from non-basic operations When registering gains from disposal of fixed assets: Credit: Cash or Receivables Debit: Gains from disposal of fixed assets When entering dividends received: Credit: Cash or Receivables Debit: Dividend income
5.2 EXPENSES AND LOSS 5.2.1 Components of expenses and losses Operating expenses are outflows or depletions of assets or incurrences of liabilities as a result of performing operations in connection with rendering services as basic operations for the accounting period. Other expenses and losses are decreases in equity as a result of all operations and transactions of the cooperative during the accounting period other than related to the cooperatives unusual or casual operations and transactions or owners expenses or designated by members. 5.2.2 Classification of expense A. Basic operations expense B. Non-operating expense and loss C. Extraordinary expense and loss Basic operations expense shall be divided into 1) interest expenses and 2) other operating expenses.
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5.2.3 Accounting for expenses Interest expenses are the payments for the use of and cost of financial resources obtained from other sources in order to employ in the cooperatives lending and other services. The interest expenses shall be classified by the type of obtained financial resources. The recording of the interests on savings and payments of interests on the resources obtained from savings institutions, banks and non-banking financial institutions is shown in paragraph 9 of Chapter 9. Expenses, which are not directly related to the cost of product and services, but incur in dayto-day business operations (service, marketing, management expenses etc.). Non-basic operations expense and loss are those, which incur in connection with the cooperative's supporting and auxiliary operations. These are usually entered at net basis by deducting related income. Operating and non-operating expenses shall be classified by expense category. For example: Communications expenses shall be booked on the basis of an invoice received: Debit: Communication expenses Credit: Cash or Payables Payments for the use of electricity, heat, clean water, and sewage shall be entered on the basis of invoices: Debit: Overhead expenses Credit: Cash or Payables Expenses for fuel, vehicle spare parts and repair shall be entered on the basis of driver's sheets, invoices etc.: Debit: Expenses for transport means, fuel and transportation Credit: Cash or Payables Commissions and fees paid to banks and non-banking financial institutions are entered as follows: Debit: Financial charges, bank commissions Credit: Cash or Payables Expenses for professional and auditing services are entered on the basis of contracts and invoices: Debit: Expenses for an independent audit and professional consulting services Credit: Cash or Payables Inventory expended shall be entered on the basis of the stock-keeper's report:
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Debit: Clerical expenses and other expenses Credit: Inventory Salaries of guards and expenses for safety services shall be recorded on the basis of contracts, invoices and other documents: Debit: Expenses for guard and safety
Credit: Cash or Payables
Salaries, discounts and social security insurance Cooperatives shall conclude employment and temporary contracts with its full- and part-time employees respectively in compliance with the laws and regulations of Mongolia, pay wages and salaries to the latter on monthly basis and make tax and fee payments and report accordingly to the tax and other respective authorities. Wages and salaries shall be recorded at the amount of wages and salaries computation sheet, social security premium and income tax: Debit: Wages and salaries Credit: Wages and salaries payable Credit: Social security premium payable Credit: Income tax payable After these and other deductions are made, when the wages and salaries are paid: Debit: Wages and salaries payable Credit: Cash in local currency The cooperative shall maintain the records of wages and salaries of the temporary employees in the same way as those of full-time employees. However, in case a one time service, which is not related to the direct and day-to-day operations, is provided by an individual (for example, repair of fixed asset), only income tax (10 per cent according to the existing law in force) shall be deducted from his/her salary: Debit: Respective expense account (for example, Repair expense (at the amount of total salary) Credit: Cash (at the amount of cash to be paid) Credit: Income tax payable (at the amount of income tax deductible) Also, when buying goods or services from individuals, the cooperative should deduct the income tax from purchase price (3 per cent according to the existing law in force) and make the payment to the state budget In compliance with the laws and regulations of Mongolia. Debit: Respective assets and expenses accounts (for example, Inventory
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(at purchase price) Credit: Cash (at the amount of actual payment) Credit: Income tax payable (at the amount of income tax deductible) Income taxes levied on the wages and salaries of full-time and temporary employees and individuals and the purchase price of goods and services shall be transferred to respective tax authority: Debit: Income tax payable Credit: Cash At the end of accounting period a report shall be prepared which shall be reconciled with relevant authorities. In compliance with the laws and regulations of Mongolia, the cooperative shall pay a certain percentage of social security and health insurance premium (total 19 per cent according to current law in force) levied on the salaries and wages of full time employees and individuals. Debit: Social security and health insurance premium Credit: Social security and insurance premium payable Social security and health insurance premiums levied on the salaries and wages of the employees and those payable from cooperatives expenses shall be transferred to respective health insurance authority: Debit: Social security and health insurance premium payable Credit: Cash At the end of the accounting period, a report to the insurance authority shall be submitted which shall be reconciled with the latter. The cooperative may provide to its employees regular or occasional discounts in accordance with its internal regulation and decision of the management. When providing such discounts the entry shall be made at the amount of discounts to be made: Debit: Discount Credit: Salaries payable No income taxes shall be levied on discounts to employees and social security premium shall be calculated and paid in the same way as salaries. Accounting for non-operating expenses
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Expenses and losses incurred as a result of the cooperatives secondary or auxiliary operations, or those, which were performed only one time, are usually recorded at net amount by deducting respective income. For example: When paying a penalty as a result of the settlement of a legal disputes: Debit: Penalties and compensations Credit: Cash Though penalties and compensations are recorded in the income statement, these are added to the taxes in income taxes account. In case losses occur as a result of a fixed asset write off: Debit: Losses from write off of fixed assets Credit: Fixed assets.
Income tax expenses The cooperative shall calculate separately the amount of taxable income in compliance with the Tax Law of Mongolia and determine the amount of income tax expense to be levied from it during the accounting period. Depending on the time factor tax expenses are divided in those of accounting period and deferred taxes. In the credit part of the taxes payable account, taxes payable for accounting period shall be entered and the deferred taxes shall be entered in the credit part of the deferred taxes payable account. The sum of these two accounts shall be recorded in income tax expenses account. Prepaid taxes to the budget shall be shown as one chapter in the other assets of the balance sheet. The cooperative shall reconcile the payment of the taxes with tax authority. In case income taxes are paid in the middle of the accounting period: Debit: Income taxes paid in advance Credit: Cash When making the payment of income taxes and booking the tax expenses at the end of the accounting period: Debit: Tax expenses Credit: Income taxes payable At the end of the accounting period the Taxes paid in advance and Taxes payable accounts shall be closed and income tax receivables and payables at the end of the accounting period shall be determined:
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Debit: Income taxes paid in advance Credit: Income taxes payable Reporting of income and expense summary At the end of the accounting period, the cooperative shall close income account with credit balance and expense account with debit balance in the income and expense summary account and the profit/loss shall be closed in retained earnings account. Closing of income accounts: Debit: All income accounts Credit: Income and expense summary Closing of expense accounts: Debit: General ledger of income and expenses Credit: All expense accounts Closing of retained earnings: In case the cooperative operated profitably: Debit: Income and expense summary Credit: Net profit In case the cooperatives operations were unprofitable: Debit: Net loss Credit: Income and expense summary The closing records of the income and expense summary account ensure mutual interrelation of the cooperatives Balance sheet, Income Statement and Statement of Equity and shall be used in the reconciliation of assets and their resources. If the cooperative has a branch, its closing transactions shall be made in the same way as above and the year-end net profit or loss shall be closed in the centers net profit. Branch reporting. In case the branch operated profitably: Debit: Net profit Credit: Inter-branch settlement In case the branch operated with loss: Debit: Inter-branch settlement Credit: Net loss
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In head office: In case the branch operated profitably: Debit: Inter-branch settlement Credit: Retained earnings In case the branch operated with loss: Debit: Retained losses Credit: Inter-branch settlement In case the cooperative operated profitably in general, the following entries shall be made on the first day of next year: Debit: Net profit or loss (for accounting period) Credit: Retained earning (for previous period) In case the cooperative operated with losses: Debit: Retained earning or loss (previous period) Credit: Net profit or loss Unusual (extraordinary) income and expenses Those income and expenses which are different from those of the ordinary operations and transactions of the cooperative and which do not occur regularly are called unusual (extraordinary) income and expenses. For example, losses and damages caused by natural disaster or casualty, gains and losses from repayment of debts before due date, renewal of trouble debt etc. When recording the nature and amount of extraordinary items in the income statement, these should be separated from ordinary items and included in the net profit of the accounting period. In general, extraordinary items may be divided into following 5 groups: Discontinued operations Extraordinary items Unordinary gains and losses Changes in accounting principles Changes in computing
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SIX. FOREIGN CURRENCY ACCOUNTING 6.1 OPERATIONS AND TRANSACTIONS CARRIED OUT IN FOREIGN CURRENCY 6.1.1 Scope This booking shall comprise all operations and transactions executed in foreign currency and the cooperatives cash, receivables and payables in foreign currency. 6.1.2 Booking operations and transactions executed in foreign currency Amounts paid in foreign currency for the purchase of assets and services and operating expenses incurred in foreign currency shall be entered in local currency converted at the official rate of the respective date. For example, assuming that the official exchange rate of US$1 was MNT 1,100 at the time of purchase of a computer for cash of US$700, the entry would be Debit: Computer Account #1703 US$700 or MNT 770,000 Credit: Foreign currency Account #1104 US$700 or MNT 770,000 The initial cost of the computer would be MNT 770,000. Also, if the official exchange rate was the same as above at the time of transaction, the payment of repair cost of US$200 to the vendor would be: Debit: Repair expenses Account #5239 US$200 or MNT 220,000 Credit: Bank foreign currency account Account #1121 US$200 or MNT 220,000 The repair cost would be MNT 220,000.
6.2 CHANGE IN EXCHANGE RATE (DIFFERENCE) 6.2.1 Exchange rate translation Recognition of exchange rate translation difference (nominal)
When accounting for cash and cash equivalent (receivables, payables) expressed in foreign currency with exchange rates other than those in original recording or previous accounting period, the difference in exchange rate shall be recognized as income or expense of the accounting period. In other words, the cooperatives cash, receivables and payables (hereinafter referred to as assets and liabilities in foreign currency) in the balance sheet shall be entered both in local
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currency and foreign currency at nominal value and each time the translation shall be made on the balance at the rate announced by Mongolbank and included in the net income of the accounting period. These shall include the following: Cash in vault in foreign currency Foreign currency accounts and deposits with banks Loan disbursed in foreign currency Other receivables in foreign currency Foreign currency savings Loan received in foreign currency Other payables in foreign currency
Individual sub-accounts for each foreign currency shall be maintained. Booking of foreign exchange rate translation
In case the exchange rate of local currency drops against foreign currency, an exchange rate translation shall be made in the cooperatives assets and liabilities accounts expressed in foreign currency each time Mongolbank announces the exchange rate and the difference between the earlier and latest valuations of assets and liabilities shall be duly recorded. 1. Debit: Cash and receivables expressed in foreign currency Credit: Foreign currency exchange rate translation income 2. Debit: Foreign currency exchange rate translation expense Credit: Payables expressed in foreign currency In case the exchange rate of local currency increases against foreign currency: 1.Debit: Foreign currency exchange rate translation expense Credit: Cash and receivables expressed in foreign currency 2.Debit: Liabilities expressed in foreign currency Credit: Foreign currency exchange rate translation income In the financial statements, income and expense of foreign exchange translation shall be shown on net basis. 6.2.2 Exchange rate differences of foreign currency transaction (real) Recognition of exchange rate differences of foreign currency transactions
As a result of day-to-day operations and when providing financial services, the cooperative shall buy or sell foreign currencies in compliance with respective legal acts and the exchange difference arising from these transactions shall be recorded as foreign currency trading income or expenses. The exchange rate difference shall be booked each time a transaction is made and shall be recognized as income or expenses of the accounting period.
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Accounting for foreign currency trading
A. Accounting for the buying of foreign currency In case the foreign currency is bought at the exchange rate lower than official rate: Foreign currency is entered as follows (at official rate): Debit: Cash in foreign currency Credit: Foreign currency trading resources When paying for the foreign currency bought (at purchase price): Debit: Foreign currency trading resources Credit: Cash in local currency Recognizing the income at exchange difference: Debit: Foreign currency trading resources Credit: Income from foreign currency trading In case the foreign currency is bought at the exchange rate higher than official rate: Foreign currency is entered as follows (at official rate): Debit: Cash in foreign currency Credit: Foreign currency trading resources When paying for the foreign currency bought (at purchase price): Debit: Foreign currency trading resources Credit: Cash in local currency Recognizing the expense at exchange difference: Debit: Loss from foreign currency trading Credit: Foreign currency trading resources B. Accounting for the selling of foreign currency In case the foreign currency is sold at the exchange rate higher than official rate: The foreign currency is booked as follows (at selling price): Debit: Cash in local currency Credit: Foreign currency trading resources The foreign currency sold is expensed (at official rate):
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Debit: Foreign currency trading resources Credit: Cash in foreign currency Recognizing the income at exchange difference: Debit: Foreign currency trading resources Credit: Income from foreign currency trading In case the foreign currency is sold at the exchange rate lower than the official one: Entering the amount of foreign currency (at selling price): Debit: Cash in local currency Credit: Foreign currency trading resources The sold foreign currency is recorded as follows (at official rate): Debit: Foreign currency trading resources Credit: Cash in foreign currency Recognizing the expenses at exchange rate difference: Debit: Foreign currency trading losses Credit: Foreign currency trading resources
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SEVEN. ACCOUNTING FOR LEASE 7.1 LEASE 7.1.1 A lease is an agreement between the lessor and lessee whereby the lessor conveys to the lessee in return for the right to use a certain asset usually for certain periodic payment (rental) for an agreed period of time. 7.1.2 Classification of leases A. Finance lease is a lease that transfers substantially all the risks and rewards incident to ownership of an asset. Title may or may not eventually be transferred. B. Operating lease is a lease other than a finance lease. 7.1.3 Valuation The leased assets and payments shall be booked at present value. 7.1.4 Accounting for leased assets and lease payments A. Financial lease The lease is classified as finance lease in case it meets one of the following requirements: a. The lease transfers the ownership rights to the lessee, b. The lease contains an option to purchase the furniture on mutual agreement, c. The lease term is equal to at least seventy five (75) per cent of the useful life of the leased asset, d. The present value of the minimum lease payments are equal to at least ninety (90) per cent of the market value of the leased asset. An asset held under the finance lease should not be recognized as a fixed asset in the balance sheet, but as a receivable at an amount equal to the net investment in the lease. The lease rentals receivable are treated by the lessor as repayments of principal and finance income to reimburse and reward the lessor for its investment and services. A lessor aims to allocate finance income over the lease term on a systematic and rational basis. Lessors accounting When transferring an asset under lease agreement at present value: Debit: Rentals receivable Credit: Fixed asset Unearned finance income
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When receiving rentals: Debit: Cash Credit: Finance lease receivable Interest income The lease furniture shall be reported as accumulated finance income at reported amount by classifying unearned finance incomes by respective bases: Debit: Unearned finance income Credit: Finance lease income In case the leased asset is sold to the lessee at the end of the lease term: Debit: Cash Credit: Gains from disposal of leased asset Lessees accounting When receiving an asset under lease agreement: Debit: Leased asset Account 1705 Credit: Rentals payable Account #2536 When paying the rentals: Debit: Rentals payable Interest expenses Credit: Cash When computing depreciation on leased asset: Debit: Depreciation expense Credit: Accumulated depreciation B. Operating lease Lessors accounting When booking accumulated rentals or rentals received in cash: Debit: Cash Receivables Credit: Rental income Lessees accounting When booking accumulated rentals or paying the rentals: Debit: Rentals expense Credit: Cash Payables
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CHAPTER TWO
SAMPLE CHART OF ACCOUNTS OF SAVINGS AND CREDIT COOPERATIVE ONE. GENERAL PRINCIPLES, 1.1 General Principles. In accounting, transactions are recorded based on generally accepted accounting principles. The main 4 principles that must be used are: 1) historical cost, 2) income recognition, 3) matching concept and 4) full additional disclosure. 1. Historical Cost Principle. Assets are recorded at the total amount of expenses incurred when they were originally acquired or purchased, and liabilities are recorded at the amount that is expected to be paid. Income Recognition Principle. Generally, income is recognized when it is 1) realized or considered as realizable, and 2) earned. Matching Concept. Expenses must be recorded in the same reporting period when its respective incomes were recognized and recorded. Full Additional Disclosure Principle. Financial statements and notes or explanations must include all important informations that might affect the conclusions or decisions of users of financial statements.
2. 3. 4.
1.2 Chart of Accounts. An account is the basic instrument to record accounting transactions. Accounts to be used by savings and credit cooperatives will consist of balance sheet and income and expense accounts. Off-balance sheet accounts can be maintained in order to have double control on certain accounts through recording. Structure of Accounts 1.3 Account Category. The first digit in the account number determines the category of the account. Accounts are classified into the following categories: 1. 2. 3. Assets. Assets are the items that have been obtained or owned by a particular entity as a result of past transactions in order to get future economic benefits Liabilities. Liabilities are future payment obligations of a particular entity due to others that have arisen as a result of past transactions. Cooperative owners equity. Cooperative owners equity represents the cooperatives own resources that remain after deducting the liabilities from the assets. Owners equity consists of initial investment or share capital, earnings or losses, and various other funds accumulated in the process of operations. Income. Expenses. For the purpose of this manual all asset and expense accounts will be called asset type accounts while all liability, owners equity and income accounts will be called liability type accounts. An off-balance sheet account is an account for double recording of the future contingent liabilities and valuables outside the balance sheet in order to verify whether these areused according to the purpose. As deemed necessary, a chart of off52
4. 5. 6.
7.
balance sheet accounts will be developed and followed in accordance with the general chart of accounts. 1.4 Account Group. The second digit in the account number determines the group of the account. Accounts are grouped under asset and liability categories. A. Balance sheet accounts are classified into the following groups: Asset 11 12 13 14 15 16 17 18 19 Monetary assets Loans Short-term investments and securities Other assets owned Inventories Other receivables expenses/settlements Tangible assets Intangible assets Long-term investments 22 23 24 25 and prepaid 31 Cooperative owners equity Liability Deposits Other resources withdrawn from nonbank institutions Resources withdrawn from banks and non-bank financial institutions Other liabilities
B. Income and expense accounts are classified into the following groups: Expense Income Interest and equivalent expenses 41 Interest and equivalent income Operating expenses 42 Other operating income Expenses for non-operating activities 43 Income from non-operating activities Extraordinary expenses 44 Extraordinary income Income tax expenses Income and expenses summary Off-balance accounts
51 52 53 54 55 61 99
1.5 Coding of Accounts. Savings and credit cooperative will use a chart of accounts with a system of basic codes from 1 to 7 digits. The first digit determines the account category, the second digit the account group, the third and fourth digits the sub- groups of that account. For example: 1101 Cash in the vault 1104 Foreign currency in the vault The last three digits represent the owners affiliation and type of an individual account determined by the first four digits Sub-accounts will be opened by the cooperative. For example Coding of Account 1213001means 1 Asset account 2 Loan account
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1 Loan in local currency 001 Code of the borrower Savings and credit cooperatives shall develop, approve and use a chart of its accounts in accordance with the coding principle and basic classification of accounts.
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Disclosure # 2 to the resolution #371 of the Minister of Finance and Economy from year 2002
SAMPLE CHART OF ACCOUNTS OF SAVINGS AND CREDIT COOPERATIVES Group number Account number A ASSETS CURRENT ASSETS CASH CASH IN HAND Cash in vault /Togrog/ Cash in vault /foreign currency/ CURRENT ACCOUNTS IN COMMERCIAL BANKS NAD FINANCIAL INSTITUTIONS Current account in local currency Current account in foreign currency Current account in local currency in other financial institutions Current account in foreign currency in other financial institutions DEPOSITS IN COMMERCIAL BANK AND OTHER FINANCIAL INSTITUTIONS Demand deposit in local currency Demand deposit in foreign currency Time deposit in local currency Time deposit in foreign currency Demand deposit in local currency in other financial institutions Demand deposit in foreign currency in other financial institutions Time deposit in local currency in other financial institutions Time deposit in foreign currency in other financial institutions ACCOUNT NAME
11
1101 1104
1110 1111 1112 1113
1120 1121 1122 1123 1124 1125 1126 1127 12
LOANS Performing loans 1210-1213 Loans to members in local currency 1220-1223 Foreign currency loans to members Non-performing loans Past due loans Past due loans in local currency to members Past due loans in foreign currency issued to members Sub-standard loans Sub-standard loans /Togrog/ Sub-standard loans /foreign currency/ 55
1230 1240
1250 1255
ACCOUNTING MANUAL FOR SAVINGS AND CREDIT COOPERATIVES Doubtful loans Doubtful loans /Togrog/ Doubtful loans /foreign currency/ Bad loans Bad loans /Togrog/ Bad loans /foreign currency/ Loan loss provision SHORT-TERM INVESTMENTS, SECURITIES Commercial securities Stock securities Allowances for marketable securities Stock securities valuation discount OTHER ASSETS OWNED Other assets owned Other assets owned valuation discount INVENTORIES OTHER CURRENT ASSETS Receivables Shortage and pilferage Allowances for receivables Inter-branch settlement Inter-branch settlement receivables /Togrog/ Inter-branch settlement receivables /foreign currency/
1260 1265 1270 1275 1285 13 1301 1311 1320 1321 14 1401 1403 15 16 1602 1605 1610 1501
1611 1614
Accrued receivables 1626-1629 Accrued interest receivable on local currency loan 1630-1632 Foreign currency loan accrued interest receivable 1636 Accrued interest receivable on local currency deposit 1638 Foreign currency deposit accrued interest receivable 1641 Securities accrued interest receivable 1646 Financial lease receivable Prepaid expenses and settlements Prepaid settlements Deferred charges Prepaid expenses Prepaid corporate income tax TANGIBLE ASSETS FIXED ASSETS Buildings and facilities Furniture Equipments and Machinery Fixed assets financing 56
1651 1652 1653 1654 17
1701 1702 1703 1704
ACCOUNTING MANUAL FOR SAVINGS AND CREDIT COOPERATIVES 1705 1706 1707 1708 1709 1710 18 1801 1802 1803 1804 1805 1806 19 1901 1902 1903 1920 B 22 Financial lease Land ACCUMULATED DEPRECIATION ON FIXED ASSETS Accumulated depreciation: buildings and facilities Accumulated depreciation: furniture Accumulated depreciation: equipment Accumulated depreciation: Financial lease INTANGIBLE ASSETS Goodwill Patents Rights Formation expenses Software Other intangible assets INVESTMENTS AND OTHER NON-CURRENT ASSETS Long-term notes Long-term ownership securities Other long-term investments and long-term receivables Long-term investments discount LIABILITIES DEPOSITS
DEMAND DEPOSITS 2201-2203 Demand deposits of members in local currency 2205-2208 Foreign currency demand deposits of members TIME DEPOSITS 2210-2213 Time deposits of members in local currency 2215-2218 Foreign currency time deposits of members 23 2301 2302 2303 24 OTHER RESOURCES WITHDRAWN FROM NON-BANK INSTITUTIONS Resources allocated as a guarantee of Loan Foreign currency trading resources Other resources OTHER RESOURCES WITHDRAWN FROM OTHER BANK AND NON-BANK FINANCIAL ORGANIZATIONS BANK LOANS Short-term bank loan in local currency Short-term bank loan in foreign currency Long-term bank loan in local currency Long-term bank loan in foreign currency LOANS FROM NON-BANK FINANCIAL INSTITUTIONS Short-term local currency loan from a non-bank financial institution Short-term foreign currency loan from a non-bank financial institution Long-term local currency loan from a non-bank financial institution 57
2401 2402 2403 2404
2411 2412 2413
ACCOUNTING MANUAL FOR SAVINGS AND CREDIT COOPERATIVES 2414 25 2502 2503 2504 2505 2506 2507 2508 2509 2510 2511 Long-term foreign currency loan from a non-bank financial institution OTHER LIABILITIES OTHER LIABILITIES Payables Payroll payable Social security and health insurance payable Personnel income tax payable Prepaid income Financial lease unrealized income Corporate income tax payable Dividends payable Other payables Deferred income tax payable INTER-BRANCH SETTLEMENT Inter-branch settlement payables /Togrog/ Inter-branch settlement payables /foreign currency/ ACCRUED PAYABLES Local currency deposit accrued interest payable Foreign currency deposit accrued interest payable Local currency loan accrued interest payable Foreign currency loans accrued interest payable Accrued interest payable for some liability accounts Financial lease payables Contingent liabilities Secondary payables COOPERATIVE OWNERS EQUITY EQUITY Share capital Revaluation reserve account (Long-term investments discount reserve) OTHER PARTS OF EQUITY Donations Grants SPECIAL PURPOSE FUNDS Reserve fund Social development fund Other funds RETAINED EARNINGS (LOSSES) Net profit (loss) for the current period Retained earnings (losses) for the previous period INCOME 58
2511 2514
2531 2532 2533 2534 2535 2536 2550 2555 C 31 3101 3102 3103
3104 3105
3107 3108 3109
3110 3111
ACCOUNTING MANUAL FOR SAVINGS AND CREDIT COOPERATIVES 41 4101 4104 4105 4106 4107 4109 42 4201 4202 4203 4204 4205 4206 4207 4208 43 4301 4302 4303 4304 44 4401 INTEREST INCOME Loan interest income Loan increased interest, loss income Securities interest income Interest income from other banks and non-bank financial institutions Financial lease income Decrease in interest income NON-INTEREST INCOME Membership acceptance fee Membership fee Foreign currency trading income Foreign currency revaluation income Income from securities trading Securities revaluation income Service commissions and fees Other operating income NON-OPERATING INCOME Penalty income Dividend income Fixed assets lease and sale gains Other income EXTRAORDINARY INCOME Extraordinary income EXPENSES 51 5102 5103 5104 5105 5109 52 5201 5202 5203 5204 5209 5212 5213 INTEREST EXPENSES Deposit interest expenses Interest expenses paid to banks and non-bank financial institutions Securities interest expenses Other interest expenses Interest expense return OPERATING EXPENSES PROVISIONING EXPENSES Provisioning expense for probable loan losses Provisioning expense for probable losses on securities Provisioning expense for probable receivable losses Expense from discount of revaluation of other assets owned Decrease in loan loss provision expense LOSSES FROM TRADING Loss from foreign currency trading Loss from securities trading LOSSES FROM FOREIGN CURRENCY AND SECURITIES REVALUATION Loss from foreign currency revaluation Loss from securities revaluation discount 59
5214 5215
ACCOUNTING MANUAL FOR SAVINGS AND CREDIT COOPERATIVES PERSONNEL EXPENSES Expenses for employees salaries Expenses for social security and health insurance withholdings Expenses for employees training Expenses for salaries to part time contractors Expenses for employees benefits Expenses for discounts and additional salaries issued to employees Expenses for bonuses Other personnel expenses OTHER EXPENSES Expenses associated with collecting loans and other receivables Financial charges Membership fees Expenses for an external audit and professional consulting services Expenses for insurance Expenses for advertising and promotion Depreciation expenses Rental expenses Overhead expenses /electricity, heat, clean water, sewage/ Expenses for routine repairs of fixed assets, sales expenses Office supplies Expenses for guards and safety Communication expenses Representation expenses Expenses for transport means, fuel and transportation Expenses for subscriptions Current expenses associated with automation Expenses for hygiene Expenses for labor safety and fire prevention Expenses for land use Expenses for research and members training Expenses for official travel Expenses for meetings and conferences Current expenses for other assets owned Other operating expenses NON-OPERATING EXPENSES Penalties and compensations Loss from write-offs of fixed assets Other expenses EXTRAORDINARY EXPENSES Extraordinary expenses Corporate income tax expenses INCOME AND EXPENSES SUMMARY
5218 5219 5220 5221 5222 5223 5224 5225
5230 5231 5232 5233 5234 5235 5236 5237 5238 5239 5240 5241 5242 5243 5244 5245 5246 5247 5248 5249 5250 5251 5252 5253 5254 53 5301 5302 5305 54 5401 5501 61 6100
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ACCOUNTING MANUAL FOR SAVINGS AND CREDIT COOPERATIVES 99 9900 9901 9902 9903 9910 9911 9912 9915 9920 9921 OFF-BALANCE SHEET ACCOUNTS Contingent liability: Guarantees Contingent liability: Loan Collateral Contingent liability: Line of Credit Valuables: Special forms Valuables: Stored valuables Means of payment Stamps in use Loans written off with the loan loss provision Loan interest settlement: Interest after cancellation of the accrual
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CHAPTER THREE
Disclosure # 3 to the resolution #371 of the Minister of Finance and Economy from year 2002
ISTRUCTION FOR PREPARATION OF FINANCIAL STATEMENTS OF SAVINGS AND CREDIT COOPERATIVES
ONE. GENERAL PROVISIONS 1. The purpose of these procedures for preparation and presentation of financial statements is to: a. Enable the comparison of the financial statements of a savings and credit cooperative over several reporting time periods as well as the comparison of these with the statements of other business entities engaged in similar activities and services; b. Assist the management of savings and credit cooperatives in implementing the International Accounting Standards; c. Eliminate identical steps in accounting and reporting procedure, including preparation and presentation of financial statements; d. Assist accountants and auditors in analyzing and identifying issues and items related to the International Accounting Standards; e. Assist auditors in determining and reporting whether the financial statements are prepared and presented in compliance with the International Accounting Standards; f. Serve as the basis for explaining and presenting the financial statement data. 2. The procedures for preparation and presentation of financial statements comprise the principles of preparing the financial statements in compliance with the International Accounting Standards, the organization, structure and contents of the financial statements as well as the valuation of assets. These procedures shall serve as the organizational and methodological basis for collection of financial information, its accounting and reporting. 3. All cooperatives shall abide by these procedures and the requirements set forth in Standard 30 of the International Accounting Standards.
1. Objective of the financial statements 1. Financial statements represent systemized general financial information on the financial position, results of operations and cash flows of a particular entity. The objective of the financial statements is to provide information on the financial position (assets, liabilities, owners equity), financial results (income and results of operations) and changes in the financial position (cash flows) of a particular entity to domestic and foreign users to assist them in making economic decisions.
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2. The management of the savings and credit cooperative shall be responsible for the timely preparation and accuracy of the financial statements. 2. Principles of preparing the financial statements The following general principles shall be observed while preparing the financial statements: 1. The savings and credit cooperative must objectively present its financial position, results of operations and cash flows in compliance with the International Accounting Standards. 2. The form of the financial statements, account names and other accounting terms must be simple, clear and understandable. 3. The accounting policies and procedures pursued by the savings and credit cooperatives must comply with each requirement of the International Accounting Standards. 4. Methodologically, the financial statement data must be consistent to enable the comparison of the financial statements over the current, past and future time periods. 5. The savings and credit cooperative shall prepare its financial statements on the going concern concept, or the continuity assumption that it will continue to operate in the future. 6. The financial statements must contain material information that can influence the decisions of users. 7. Unless otherwise stipulated in any of the International Accounting Standards, assets and liabilities will not be offset against each other. 8. The financial statements shall be prepared by using double entry bookkeeping methods. 9. The bookkeeping/accounting process has the following sequence: compiling the supporting documents, recording entries in journals, posting to the general ledger, making a transactions report and preparing the financial statements. 10. Accounting transactions will be recorded on the accrual basis. 3. Financial statements and its attachments 1. Financial statements shall consist of the following: 1. Balance Sheet (CT-1) 2. Income Statement (CT-2) 3. Statement of Changes in Owners Equity (CT-3) 4. Statement of Cash Flows (CT-4) 5. Accounting policies and additional notes 2. In addition to the financial statements, a particular savings and credit cooperative may prepare other special statements such as the income tax statement, prudential ratios statement and various reports. 3. Additional explanatory notes required for the disclosure of accounting policies should be attached to the financial statements together with computations and analyses. These are called additional notes. The annual financial statements must be accompanied with additional notes. 4. The accounting policies and additional notes shall be prepared in accordance with the methodology and procedures approved by the Ministry of Finance.
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5. Accounts On the basis of these procedures as well as the chart of accounts and model accounting procedures, savings and credit cooperatives shall maintain a chart of accounts suited to their peculiarities. 5. Unit of expression for financial statement indicators All financial statement indicators of the savings and credit cooperatives shall be expressed in Togrog, the national currency of Mongolia. Financial statement indicators of large savings and credit cooperatives may be shown rounded to the thousand, if expressing in local currency requires numerous technical operations and tedious computations.
TWO. BALANCE SHEET (CT-1) Balance sheet 1. In order to report the financial position of a cooperative at a specific point in time (month, quarter, year), all assets, liabilities and equity shall be expressed in monetary terms and shown on the balance sheet. 2. The balance sheet shall be prepared in accordance with Form CT-1. Columns 1,3 of the balance sheet will show amounts for individual items while columns 2,4 show the total amounts for whole groups. Monthly and quarterly balance sheets where the comparison of balances is not required may have two columns. Annual financial statements must show both beginning and ending balances. 3. Financial statement items will be expressed on a cumulative basis from the beginning of the reporting year, and the beginning balance shall be the beginning balance of not the respective reporting period, but the reporting financial year. Classification of balance sheet items and preparation of the balance sheet Balance sheet items shall be classified as assets, liabilities and equity. a) Assets are classified as follows: Current assets Non-current assets b) Liabilities are classified as follows: Short-term liabilities Long-term liabilities c) Owners' equity is classified as follows: Cooperative owners' equity Retained earnings Other parts of owners equity
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The assets, liabilities and owners' equity are valued and reported on the balance sheet at the valuation described in model accounting manual. However, it is not allowed to write off from the balance sheet any assets through compensating it by a liability or owners' equity item. Assets to be used within one year are classified as current assets and those used over one year are regarded as non-current assets. Assets and liabilities are shown on the balance sheet in sequence of their liquidity and repayment timeframe, respectively. Retained earnings resulting from business operations, or transactions affecting owners equity are shown on the balance sheet separately.
Current assets Cash and cash equivalents, loans, short-term investments, other assets owned and other current assets that are used in business operations or stored for sale during the normal course of business within one year and have no limit on their use shall be included in this category. Reporting on the balance sheet 1. Cash and cash equivalents !" Cash in vault in local currency and foreign currency (account No. 1101, 1104); !" Togrog and foreign currency current accounts with banks and non-banking financial institutions, special purpose funds, other cash equivalents (checks, electronic cards, certificates etc.) (account No. 1110-1113); !" Togrog and foreign currency deposits with banks and financial institutions (account No. 1120-1127) shall be recorded at the nominal value. 2. Short-term investments !" Commercial securities (account No. 1301) shall be reported at the net value after deduction of the commercial securities loss provision (account No. 1320); !" Ownership securities (account No. 1311) shall be reported at the net value after deduction of the ownership securities valuation discount (account No. 1321). 3. Receivables Loans !" Loans of all categories shall be recorded on net basis by deducting the loan loss provision (account No. 1285) from the total amount of loans (account No. 1210-1275). !" Receivables (account No. 1602), shortage and pilferage (account No. 1605) are reported at their net values after deduction of their loss provisions (account No. 1610); 4. Other current assets !" Other assets owned (account No. 1401) are reported at the net value after deduction of the valuation discount for other assets owned (account No. 1403).
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!" Inventories (account No.1501) are reported at cost; !" Prepaid expenses (account No. 1653) and prepaid income taxes (account No. 1654) are reported at the amount outstanding after deducting the expenses incurred during the reporting period.
!"Deferred payments (account No. 1652) advances and prepayments (account No. 1651)
Non-current assets Non-current assets include tangible and intangible assets and long-term investments that have a limited reasonable useful life and are used over one year, not intended for sale during the normal course of business and used for production, business, services and lease purposes, the original cost of which is gradually released to expenses through depreciation. 1. Fixed assets: !" Fixed assets are reported at the original cost (account No. 1701-1706) and residual value. !" Residual value is determined by deducting the accumulated depreciation (account No. 1707-1710) from the original cost. 2. Intangible assets: !" Intangible assets (account No. 1801-1806) are reported at the net value after deducting amortization from the original cost. 3. Investments and other furniture: !" Long-term debt (account No. 1901), long-term ownership securities (account No. 1902), other long-term investments and long-term receivables (account No. 1903) which are not included under current assets shall be reported at their net realizable value by deducting the long-term investment valuation discount (account No. 1920).
Short-term liabilities Liabilities to be repaid within twelve months since the balance sheet date, or the normal operating cycle of the cooperative are classified as short-term liabilities. 1. Deposits: !" Balances on all types of deposit accounts (2201-2218) shall be reported on the balance sheet at the present value. !" At the end of the financial year, accrued interest payable on demand deposits shall be added to the principal balance of the deposit. 2. Other resources collected from non-banking units:
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!" Loan collateral (account No. 2301) and other resources (account No. 2303) shall be reported at the present value. !" Foreign currency trading resources (account No. 2302) shall be closed at the end of accounting period. 3. Resources collected from other banks and financial institutions: !" Short-term loans or those to be repaid within less than one year received from banks (account No. 2401, 2402) or non-bank financial institutions (account No. 2411, 2412) are reported in this part at present value. 4. Other liabilities: !" Payables (account No. 2502) - Outstanding payment balances for goods, supplies and services received on credit from suppliers and service providers are reported here. !" Income tax payables (account No. 2508) Tax amounts computed in compliance with the tax laws and outstanding at the end of the current accounting period are reported here. Tax balances outstanding at the end of the quarter or year must be equal to those, which are verified and audited by tax controller. !" Payroll payable (account No. 2503) - Wages, salaries and other rewards to be paid to employees shall be reported here. !" Payroll taxes and insurance premiums payable (account No. 2504, 2505) Outstanding balances of individual income taxes, social security and health insurance premiums levied on wages and salaries as well as social security and health insurance premiums to be paid by employer shall be reported here at the end of the accounting period. !" Prepaid income (account No. 2506) In case service fees are received before the service is delivered, or interest payments on loans to be used are made in advance, a short-term liability is created and reported in this part at the amount received. The liability shall be closed when the services are provided at the amount incurred during the current accounting period, and recognized as income. !" Dividends payable (account #2509) - Dividends announced by the cooperative based on the decision of the meeting of all members are accounted for and reported here. However, only cash dividends outstanding at the end of the accounting period shall be regarded as short-term debt. !" Deferred tax liabilities - Deferred tax liabilities are reported at the amount of temporary difference arising from the difference between the book value of assets and their taxable base. The computation of the deferred tax liabilities shall be based on the Procedures for Regulating the Relations Between Financial Statements and Tax Return Reports approved by Ministry of Finance and Economics !" Other payables (account No. 2510) - This section includes payables incurred from operations other than core business operations, different charges arising in the normal course of business operations, outstanding payables recognized as expenses, current maturities of long-term debt, and payables which have already been paid, but the outcome of which is to be determined in the next accounting period. !" Inter-branch receivables and payables shall be offset within the whole system and reported in this section at the end of the accounting period. !" Accrued interest payables shall be reported at the amount after deducting the amount of cash payment from the amount accrued.
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Long-term liabilities Loans received from banks (account No. 2403, 2404) and non-bank financial institutions (account No. 2413, 2414) with the maturity over one year and long-term payables obtained on repayable terms from other financial institutions and donors regarded as Secondary payables (account No. 2555) shall be reported at present value. Owners equity 1. Owners equity shall be reported at present value; 2. Retained earnings and deficits shall be classified as of the current accounting period and of previous periods; 3. Special purpose funds shall be reported by each purpose in the Retained Earnings part; 4. Revaluation of fixed assets shall be shown in the Revaluation Surplus part; 5. All kinds of donations and premiums shall be reported separately as other parts of Owners Equity.
THREE. INCOME STATEMENT (CT-2) Income statement is a financial statement, which summarizes the results of an entitys activities for a certain period of time. 1. In order to show income and results of operations, interest income is reported at the amount attributable to the current accounting period and other income is reported at actual amounts. Interest expenses incurred for earning these incomes shall be presented on the income statement at the amount attributable to the current accounting period and other expenses shall be shown at the amount actually incurred. 2. The income statement shall be prepared in compliance with Form CT-2. 3. Expenses on the income statement shall be classified according to their designations.
Preparation of the income statement Income statement shall be prepared according to the following principles: 1. When preparing an income statement for the accounting period, income and expenses of the current accounting period shall be recorded on accrual basis. According to this principle, incomes are recorded when they are earned and become measurable. Expenses are recorded when they actually incur and become measurable. When a product or a service is delivered to outside customers, income and expenses are recognized at the time of sale regardless of whether income is earned or expenses are paid in cash. Nonoperating Income shall not be included in income from core operations. 2. Income and expenses shall be classified by the reason of their occurrence. Income and expenses are recorded on the matching principle, according to an expense item is recorded for each income item.
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3. Income statement items shall be shown at their amounts. Items that do not have income or expense characteristics shall not be included here. 4. An income statement will show gross profit (or loss), or net interest income, operating profit (or loss), income (or loss) from ordinary operations, profit (or loss) before taxes and net profit (or loss). Gross Profit (net interest income) Gross profit or Net interest income shall be determined as the difference between interest income and interest expense. Operating profit Profit (or loss) from core operations shall be computed by adding other income from core operations to gross profit and subtracting expenses for core operations and loss provisions. Non-operating Income This part of the income statement shows income from the cooperatives subsidiary operations. Non-operating Expenses Non-operating Expenses include those expenses, which are not included in core operations expenses. Profit and loss from ordinary operations Profit (loss) from ordinary operations shall be obtained by adding non-operating income to operating profit (or loss) and subtracting non-operating expenses.
Profit (or loss) before taxes Profit (or loss) before taxes shall be computed by adding extraordinary income to profit (or loss) from ordinary operations and subtracting extraordinary expenses.
Income tax !" Taxable income for the accounting period shall be determined by adding non-tax deductible expenses considered by tax laws onto profit (or loss) before taxes and subtracting non-taxable income. !" Income tax computed on taxable income for the accounting period shall be shown here. Net Profit (or loss) Net profit (or loss) shall be determined by subtracting income tax from profit (or loss) before taxes.
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FOUR. STATEMENT OF CHANGES IN OWNERS EQUITY (CT-3) 1. The statement of changes in owners equity shows the cooperative owners equity, revaluation, retained earnings and any other changes in owners equity. 2. The statement of changes in owners equity shall be prepared according to Form CT-3. Structure of the statement of changes in owners equity: !" Adjusting the beginning balance of retained earnings shall show the impact of changes in the accounting policy and adjustments for fundamental errors. !" The capital and investments revaluation surplus shall be reported on the statement as changes in equity. !" Changes in owners equity, share premiums and other reserves shall be shown as of the ending and beginning of the accounting period. !" The ending balance of retained earnings (or loss) for the accounting period shall be determined by adding net profit for the accounting period to the balance of retained earnings (or loss) of the preceding year and making non-cash adjustments and subtracting dividends. !" Revaluation surplus is shown by the total amount of positive or negative changes. !" The ending balance of owners equity shall be determined by adding the amount of total positive changes to the beginning balance of the total equity and subtracting the amount of total of negative changes.
FIVE. CASH FLOW STATEMENT 1. Changes in cash during the accounting period will be shown in the statement of cash flows. 2. The statement of cash flow shall be prepared according to Form CT-4. 3. The indirect method presentation will be used in preparing the statement of cash flows. If a direct method is allowed to be used, the structure of the statement may be changed to comply with this method. Components of the statement of cash flows: The statement of cash flow shall consist of the following components: A. Cash flows from operations; B. Cash flows from investing activities; C. Cash flows from financing activities; D. Total net cash flows.
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Sources of cash and cash expenditures shall be shown in cash inflows and cash outflows. Net cash flows from operations, investing and financing activities shall be determined by subtracting total cash outflows from total cash inflows. Total net cash flows shall be determined as the sum of net cash flows from operating, investing and financing activities. The net change in cash, determined by subtracting the cash balance at the end of the accounting period from the cash balance at the beginning of the accounting period, shall be equal to the amount defined as Total net cash flows on the statement of cash flows.
A. Cash flows from operating activities Cash flows from operating activities a key indicator of the extent to which the operations of the cooperative generate sufficient cash flows to repay loans, maintain the operating capability of the cooperative, pay dividends and make new investments without attracting external sources of financing. 1. Cash flows from operating activities comprise all kinds of cash receipts and cash payments related to core operations, investments and cash receipts and cash payments related to operations other than financial operations. 2. When reporting cash flows from operating activities using the indirect method, the net profit shall be adjusted for the effects of: !" Non-cash items such as depreciation, discount, loss provisions, deferred taxes, unrealized foreign currency gains and losses. !" All other items resulted from investing or financing activities, but used in determining net profit. !" Increases or decreases in loans, receivables, payables, inventories and prepaid expenses. 3. When cash flows from operating activities are determined using the direct method, each class shall show cash receipts and cash payments shall be shown by each purpose to record operating transactions. B. Cash flows from investing activities Cash flows from investing activities represent cash expenditures that have been made for creating assets and resources intended to increase future income and cash flows. 1. Cash flows from investing activities include cash payments to acquire or cash receipts from sales of investments other than long-term assets and cash equivalents. 2. The cash receipts part of investing activities of the cash flows statement will show investments and sales of fixed assets, or the amount of the original cost. 3. The cash payments part of investing activities of the cash flows statement will show longterm investments in the form of acquiring securities for the long-term holding, acquisitions of tangible and intangible assets and repair costs to be capitalized.
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C. Cash flows from financing activities Cash flows from financing activities enable to predict the amount of future claims that will be made by providers of capital to the entity. 1. Cash flows from financing activities are related to the changes in the entitys liabilities and owners equity. 2. The cash receipts part of financing activities of the cash flows statement will show cash proceeds from long-term loans and sales of securities, share capital, and other donations. 3.The cash payments part of financing activities of the cash flows statement will show payments of long-term loans and payables attributable to the current accounting period and cash payments of dividends paid in cash, etc.
Transactions not affecting cash flows Transactions not affecting the increase or decrease in cash flows include the revaluation of fixed assets, increases or decreases in equity as a result of making or donating non-cash contributions, etc.
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SIX. ACCOUNTING POLICIES AND NOTES TO THE FINANCIAL STATEMENTS 1. Accounting policies Accounting policies encompass the unit of measurement of financial statement items, the accounting basis, translation, rules and regulations and practices used and observed by savings and credit cooperatives in preparing and presenting their financial statements. Accounting policies should be disclosed and attached to the financial statements and should include the following: 1. Disclosure of the cooperatives activities, main partners, changes in the operating environment and policy. 2. Crucial accounting policies, especially accounting for changes in valuation of assets, liabilities etc. 3. Measurement base used in the preparation of financial statements. 4. Each special policy required for the right understanding of the financial statements should be disclosed. The disclosure of, but not limited to, the following should be considered and included in the accounting policies: a. b. c. d. e. f. g. h. i. j. k. l. m. n. o. p. q. Recognition of income Loan classification, percentage of loss provision Valuation of other assets owned Recording tangible and intangible assets, their depreciation Cost of resources, other expenses Furniture and accounting for it Financial instruments and investments Lease Inventory Taxes (including deferred taxes) Retained earnings, reserves Employees pensions and benefits Foreign currency transactions, protection Cash and cash equivalents definition Accounting for inflation Extraordinary activities Contingencies and events occurring after the balance sheet date
The savings and credit cooperatives shall disclose only those parts of the above-mentioned policies, which are related to them. 2. Notes to the financial statements
Notes to the financial statements are intended to clarify properly the contents of the components (balance sheet, income statement, statement of changes in owners equity, statement of cash flows) of the financial statements. The following notes may be added to the financial statements and used in the analysis.
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1. Tangible assets shall be classified in compliance with standard 16 of the International Accounting Standards; 2. Additional notes on loans and loss provisions; 3. Additional notes on other current assets; 4. Notes on changes in fixed assets and depreciation; 5. Notes on long- and short-term investments; 6. Additional notes on operating expenses; 7. Notes on staffing, wages an salaries; 8. Notes on cash in vault and cash in bank current account; 9. Analysis of intangible assets; 10. Additional information on liabilities; 11. Capital transactions executed with members; 12. Book value for each class of owners equity, changes adjusted at the beginning and the end of the respective period; 13. Analysis of and notes on computation of all kinds of taxes; 14. Computations of retained earnings, etc. Any notes from the above mentioned which are not relevant to a particular cooperative may be omitted. But any additional analysis or computations, which are deemed necessary for the cooperative, shall be prepared accordingly. Certain notes and computations may be prepared as a table, or in the narrative, analytical, explanatory form. 3. Other additional notes 1. Name, address and type of liability of the reporting cooperative. 2. Nature and definition of the core business activities of the cooperative. 3. Explanation, whether the financial statements represent only single cooperative or pertain to several cooperatives and other entities. 4. Average number of employees working in the cooperative at the end or during the reporting period. 5. Accounting period of the financial statements and unit of expression. 6. Proposals and comments to supervising professional organizations on financial issues.
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Name of cooperative:. . . . . . . . . . . . . . . . . BALANCE SHEET Date: . . . . . . . . . . . . . ITEM A.ASSETS CURRENT ASSETS CASH 1.Cash 2.Current accounts with banks and financial institutions 3.Deposits at banks and financial institutions SHORT TERM INVESTMENT 4.Securities /4.1+4.2/ 4.1 Commercial securities 4.2 Short-term ownership securities 5.1 / Securities loss provisions/ 5.2 /Ownership securities valuation discount/ 9.Net balance of securities /7-8/ RECEIVABLE 6.Loans /6.1+6.2+6.3+6.4+6.5/ 6.1 Performing loans 6.2 Past due loans 6.3 Substandard loans 6.4 Doubtful loans 6.5 Bad loans 7. / Loan loss provision/ 8.Net loans /4-5/ 9.Receivables from entities 10. /Receivebles loss provisions/ 11.Net balance of receivables /10-11/ 12.Interbranch receivables 13.Loan accrued interest receivable 14.Deposit accrued interest receivable 15.Securities accrued interest receivable 16.Other receivables OTHER CURRENT ASSETS 17.Other assets owned 18.Valuation discount of other assets owned 19.Net balance of other assets owned /21-22/ 20.Inventories 21.Prepaid expenses, settlements TOTAL CURRENT ASSETS NON-CURRENT ASSETS 22.Tengible assets 22.1.Land 22.2.Buildings and Facilities 23.1.Accumulated depreciation 22.3. Equipments and machinery
CT-1
(in Togrogs) Beginning balance Ending balance Section Group Section Group
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23.2. (Accumulated depreciation) 22.4.Furniture 23.3. /Accumulated depreciation of fixed assets/ 24.5.Other fixed assets 23.4. (Accumulated depreciation) 23.6.Fixed assets financing 24.Net balance of fixed assets /20+21/ 25.Intangible assets OTHER NON-CURRENT ASSETS 26.Long-term investments 27. /Long-term investment securities valuation discount / 28.Net long-term investments /24+25/ TOTAL OTHER NON-CURRENT ASSETS TOTAL NON-CURRENT ASSETS TOTAL ASSETS B.LIABILITIES SHORT-TERM LIABILIITES 1.Demand deposits 2.Time deposits 3.Other financial resources from non-banking fin.insts 5.Short-term loans from banks and other fin. Institutions 6.Accrued interests payable 7.Other liabilities 8.Interbranch payables TOTAL SHORT-TERM LIABILITIES LONG-TERM LIABILITIES 9.Long-term debt from banks and other fin.institutions 10.Contingent liabilities 11. Secondary payables TOTAL LONG-TERM LIABILITIES TOTAL LIABILITIES C. EQUITY 1.Paid-in capital 2.Revaluation reserve 3.Long-term investments discount 4.Donations, grants 5.Other property 6.Reserve fund 7.Social development fund 8.Other funds 9.Net income /loss/ (current period) 10.Retained earnings (loss) /previous period/ TOTAL EQUITY TOTAL LIABILITIES AND EQUITY /Seal and signature/ DIRECTOR OF COOPERATIVE CHIEF ACCOUNTANT
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Name of cooperative: INCOME STATEMENT Date: . . . . . . . . . . . . . ITEM INTEREST INCOME 1.Interest income from performing loans 2.Income from penalties 3.Securities interest income 4.Interest income from other banks and fin.institutions 5.Income from financial lease TOTAL INTEREST INCOME INTEREST EXPENSE 6.Savings interest expense 7.Interest paid to banks and fin.institutions 8.Securities interest expense 9.Other interest expense TOTAL INTEREST EXPENSE NET INTEREST INCOME OTHER OPERATING INCOME Membership acceptance fee Membership fee Service fee Other operating income TOTAL OTHER OPERATING INCOME OPERATING EXPENSES 24.Personnel expense 24.1 Salaries 24.2 Health and social insurance expense 24.3 Training expenses 24.4 Wages of employees on temporary contract 24.5 Compensations and premiums to employees 24.6 Bonuses 24.7 Other personnel expenses 25.Other expenses 25.1 Expenses related to repayment of loans and payables 25.2 Financial commissions 25.3 Membership fee, audit expenses 25.4 Insurance fee 25.5 Advertising 25.6 Depreciation 25.7 Rentals 25.8 Utilities 25.9 Minor repair of fixed assets, their disposal 25.10 Office supplies 25.11 Expenses for security and safety 25.12 Communications expenses 25.13 Expenses for transport means, fuel and transportation 25.11 Other operating expenses TOTAL OPERATING EXPENSES Reporting period
CT-2
(in Togrogs) Cumulative
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PROFIT (LOSS) BEFORE PROVISIONING EXPENSES Loan loss provisioning expense Securities loss provisioning expense Receivables loss provisioning expenses Other assets owned revaluation discount expenses TOTAL LOSS PROVISIONS TOTAL OPERATING PROFIT (LOSS) NON-OPERATING INCOME Penalties income Dividend income Other non-operating income Income from foreign currency trading Income from securities trading Foreign currency exchange rate translation income Securities revaluation income TOTAL NON-OPERATING INCOME NON-OPERATING EXPENSES Penalties and compensation Loss from fixed assets write off Other non-operating expenses Foreign currency trading expenses Securities trading expenses Foreign currency exchange rate translation expenses Securities revaluation expense TOTAL NON-OPERATING EXPENSES PROFIT (LOSS) FROM ORDINARY ACTIVITIES 27.Extraordinary income 28.Extraordinary expenses PROFIT (LOSS) BEFORE INCOME TAXES 29.Taxes NET PROFIT (LOSS) /Seal and signature/ DIRECTOR OF COOPERATIVE CHIEF ACCOUNTANT
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Name of cooperative: STATEMENT OF CHANGES IN EQUITY Date: . . . . . . . . . . . Special purpose funds Share capital Revaluation surplus Conversion funds
CT-3
(in togrogs) Total amount

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INDEX Balance as of . . . . . . . . . . . .. Changes in Accounting policy Adjusted beginning balance Increase (decrease) in share capital Increase (decrease) in revaluation surplus Decrease in long-term investments discount Foreign currency conversion reserve Dividends distribution: Dividends Special purpose funds Increase in special purpose funds Net profit for current period Balance as of . . . . . . . . . . Decrease in share capital Decrease in revaluation surplus Increase in long-term investments discount Difference of foreign currency conversion Dividends distribution: Dividends Special purpose funds Decrease in special purpose funds Net profit for current period Balance as of . . . . . . . . . .
/Seal and signature/ DIRECTOR OF COOPERATIVE CHIEF ACCOUNTANT
Retained earnings
Name of cooperative: CASH FLOW STATEMENT Date . . . . . . . . . . DESCRIPTION CASH FLOW FROM OPERATING ACTIVITIES Net income/loss for current period Adjustments: Depreciation expense (+) Loss provisions (+) Gains (-) or losses (+) from disposal of fixed assets and long-term investments Gains (-) or losses (+) from revaluation of short-term investment securities Net increase (-), decrease (+) in total loans Net increase (-) / decrease (+) in short-term investments Net increase (-)/decrease (+) in other assets owned Net increase (-) / decrease (+) in other assets owned Net increase (-)/decrease (+) in accrued interest receivables Net increase (+)/decrease (-) in savings Increase (+)/decrease (-) in other sources atracted from non-banking institutions Increase (+)/decrease (-) in other short-term liabilities Net increase (+)/decrease (-) in accrued interest payables NET CASH FLOW FROM OPERATING ACTIVITIES CASH FLOW FROM INVESTING ACTIVITIES Long-term investments acquired (-) Long-term investments disposed off (+) Fixed assets acquired (-) Fixed assets disposed off (+) NET CASH FLOW FROM INVESTING ACTIVITIES CASH FLOW FROM FINANCING ACTIVITIES Loans received from other financial institutions (+) Loans repaid to financial institutions (-) Increase (+)/decrease (-) in shares and contributed assets Increase (+)/decrease (-) in secondary payables Increase (+)/decrease (-) in other accounts of owners' equity Dividends paid (-) NET CASH FLOW FROM FINANCING ACTIVITIES TOTAL NET CASH FLOW BEGINNING BALANCE OF CASH AND CASH EQUIVALENTS ENDING BALANCE OF CASH AND CASH EQUIVALENTS /Seal, signature/ DIRECTOR OF COOPERATIVE
CHIEF ACCOUNTANT
CT-4
Section
(in togrogs) Group
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Name of cooperative:. . . . . . . .
Name of cooperative:. . . . . . .
CASH RECEIPT VOUCHER#

Name: ____________________ ______________________________
No
CASH RECEIPT VOUCHER# #_____________ SLIP Paid by:

Full name
Date:__________________
Transaction subject
Credit
Amount
Transaction subject:
_________________ togrogs __ mongo TOTAL AMOUNT In words: ____________________________________________ _______________________________________________________ Accountant: ___________________ Received by: _____________________ Paid by: _______________________ Attached document:___________________________________ (in words) Accountant: ________________ Received by: __________________ Paid by: _____________________ Date_______________
Name of cooperative:. . . . . . . .
Name of cooperative:. . . . . . .
CASH RECEIPT VOUCHER#

Name: ____________________ ______________________________
No
CASH RECEIPT VOUCHER# #_____________ SLIP Paid by:

Full name
Date:__________________
Transaction subject
Credit
Amount
_________________ togrogs __ mongo TOTAL AMOUNT In words: ____________________________________________ _______________________________________________________ Accountant: ___________________ Received by: _____________________ Paid by: _______________________ Attached document:___________________________________ (in words) Accountant: ________________ Received by: __________________ Paid by: _____________________ Date_______________ 81
Name of cooperative:
CASH PAYMENT VOUCHER #

Name:______________________ ______________________________
No
CASH PAYMENT VOUCHER# # ____________ SLIP Paid to:

Full name
Date: ___________________
Transaction subject
Debit
Amount
_________________ togrog __ mongo TOTAL AMOUNT In words:

(In words)
Approved by: _________________ Accountant:__________________
Paid by: _________________ Received by: ______________

Certificate ID #:________________
Accountant: __________________ Paid by: ____________________ Received by: ___________________ Date: ________________
Attached document:______________________________________
CASH PAYMENT VOUCHER #

Name:______________________ ______________________________
No
CASH PAYMENT VOUCHER# # ____________ SLIP Paid to:

Full name
Date: ___________________
Transaction subject
Debit
Amount
_________________ togrog __ mongo TOTAL AMOUNT In words:

(In words)
Approved by: _________________ Accountant:__________________
Paid by: _________________ Received by: ______________

Certificate ID #:________________
Accountant: __________________ Paid by: ____________________ Received by: ___________________ Date: ________________ 82
Attached document:______________________________________
Name of cooperative . . . . . . . .
CASH COUNT REPORT

Cashier: Banknote 10,000 5,000 1,000 500 200 100 50 20 10 5 1 TOTAL : Amount /in words /: Amount due /in words/ Overage/+/, deficiency / - / Other: Cash counted by: Cashier: / / / / / / Q-ty Date : . ./. . ./200 . . . Amount
CASH COUNT REPORT

Cashier: Banknote 10,000 5,000 1,000 500 200 100 50 20 10 5 1 TOTAL : Amount /in words /: Amount due /in words/ Overage/+/, deficiency / - / Other: Cash counted by: Cashier: / / / / / / Q-ty Date : . ./. . ./200 . . . Amount
83
Name of cooperative: . . . . . . . . . . . . . . . . .. .
Name of cooperative: . . . . . . . . . . . . . . . . .. .
MONEY TRANSFER REQUEST

Payment made by:_______________________________ Payer's account #: ____________________ Payee name:_____________________________ Payee bank and account #:______________ Transaction subject:
MONEY TRANSFER REQUEST

Payment made by:_______________________________ Payer's account #: ____________________ Payee name:_____________________________ Payee bank and account #:______________ Transaction subject:
Amount: __________________________ /in words/ Request made on ( date) : Signature: Transfer approved by: ___________________________ Signature: ______________ / / Amount: __________________________ Date: _________________________
Amount: __________________________ /in words/ Request made on ( date) : Signature: Transfer approved by: ___________________________ Signature: ______________ / / Amount: __________________________ Date: _________________________
84
Name of cooperative: . . . . . . . . . . . . .. . . . . . .
Name of cooperative: . . . . . . . . . . . . .. . . . . . .
REQUEST FOR CASH

Where/Whom: _______________________________________________ Request made by: _______________________________________________ Transaction subject: ______________________________________________________ ______________________________________________________ ______________________________________________________ Amount: __________________________ Request made on (date): __________________________________ Request made by (signature): ___________________________ ENDORSED BY: Amount: __________________________ Date: _________________________ Name: ______________ / Position: _________________________ /
REQUEST FOR CASH

Where/Whom: _______________________________________________ Request made by: _______________________________________________ Transaction subject: ______________________________________________________ ______________________________________________________ ______________________________________________________ Amount: __________________________ Request made on (date): __________________________________ Request made by (signature): ___________________________ ENDORSED BY: Amount: __________________________ Date: _________________________ Name: ______________ / Position: _________________________ /
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Name of cooperative: . . . . . . . . . . . . . . . . . . . . . . .
OFF BALANCE DISPOSAL VOUCHER Date: ______________________ . . . . . . . . . . . . . . . . . . . . . . ./name of institution/ . . . . . . . . . . . . . . . . . . . . . . . . . Account # . . . . . . . /based on name of institution, type of document, name of person/ No Inventory Quantity Togrogs Mongos
Number of attached documents: ___________________ CASHIER PAID: ________________________ DIRECTOR: ________________ ACCOUNTANT: ______________ RECEIVED BY: __________________________
Name of cooperative: . . . . . . . . . . . . . . . . . . . . . . . . .
OFF BALANCE DISPOSAL VOUCHER Date: ______________________ . . . . . . . . . . . . . . . . . . . . . . ./name of institution/ . . . . . . . . . . . . . . . . . . . . . . . . . Account # . . . . . . . /based on name of institution, type of document, name of person/ No Inventory Quantity Togrogs Mongos
Number of attached documents: ___________________ CASHIER PAID: ________________________ DIRECTOR: ________________ ACCOUNTANT: ______________ RECEIVED BY: __________________________
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Name of cooperative: JOURNAL VOUCHER # ____________
Date: _________________________
Transaction subject Dt Cr Total Account Amount
In words: _______________________________________________________________ ______________________________________________________________________
Accountant: _____________________ Reviewed by: ___________________________
Name of cooperative: JOURNAL VOUCHER # ____________
Date: _________________________
Transaction subject Dt Cr Total Account Amount
In words: _______________________________________________________________ ______________________________________________________________________
Accountant: _____________________ Reviewed by: ___________________________

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Name of Cooperative: . . . . . . . . . . .. . . . . . . . ..
GENERAL LEDGER Name of account: ________________________

Debit Month Journal Journal Journal Journal Journal Journal Journal Acc #... Acc #... Acc #... Acc #... Acc #... Acc #... Acc #... 1 2 3 Total 4 5 6 Total 7 8 9 Total 10 11 12 Total Account #:_______ Credit Journal Journal Journal Journal Journal Journal Journal Acc #... Acc #... Acc #... Acc #... Acc #... Acc #... Acc #... Permanent balance
Total
Total
88
Name of cooperative: . . . . . . . . . . . . . . . . . . . . . .
CASH IN VAULT REPORT

Report period: __________________
Date Income Expense Document # Transaction subject Income Expense Balance
Name of currency: ______________
Beginning balance
Sub-Total Ending balance Cashier Reviewed by accountant: / / / / 89
Name of cooperative: ______________________________
CASH BOOK
Page #:_______ Report period: __________________
No
Date of transaction Transaction document #
Transaction subject
Income
Expense
Balance
Transaction verified and validated
Beginning balance
Page amount Ending balance
Cashier: Reviewed by:
/ /
/ /
90
LOAN REGISTRATION FORM #

Account # ______________________________ Membership #______________________________ Full name : ________________________________ Address, phone #: _______________________________
Contract # Date
Loan received Amount Interest rate Date
Repayment principal interest
Days overdue
Penalty
Total repayment
Loan balance
Repayment schedule Date Principal Interest
Signature of loan officer
91
Name of the Savings and Credit Cooperative
LOAN MONITORING Foreign currency Original disbursement # Borrower Date Beginning balance Interest receivable Increased Loan Interest Date Repayment /for reporting month/ Principal Interets receivable Interest income Loss Total amount Ending balance Loan Interest
Amount Interest rate Principal
Total: Prepared by:
92
LOAN LOSS PROVISION CALCULATION
as of (date) . . . . . . . . . . . . . . . .
No.
Loan classification
Balance
% of Provisioning B
Amount to be provisioned C=A*B
Actual Provisioning D
Amount to be adjusted /+/, /-/ E=C-D
A 1 2 b c d Bad Total Performing Non-performing, of which: Overdue Substandard Doubtful
Prepared by:
93
DETAILED REGISTER OF SETTLEMENT ACCOUNTS
Account: Address:
(Name of the Organization or Individual) Transaction Debit Credit Ending Balance Debit Credit
Date
Transaction description
Total Prepared: _____________________ Reviewed: _____________________ Date: Date: 94
SUMMARY OF RECEIVABLES AND OTHER SETTLEMENTS REGISTER Account # Date for accounting period _________
Individual Sub account # A Name of institution or person B Beginning balance 1 Debit transaction 2
Prepared by _______ on ________

Of which: Overdue Credit transaction 3 Ending balance 4 1-180 days 5 180-360 days 6 over 360 days 7
Total Prepared by: ________________date: Reviewed by: ______________date: 95
Materials form
Name of material: Unit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Purchase Date Transaction Q-ty Unit price Total Expenditure Unit price Total Unit price Account . . . . . . . . . . . Code . . . . . . . . . . . . . . Balance Total
96
INVENTORY REPORT Account # . . . . . . . Accounting period date _________

Code of Inventory item Q-ty Q-ty Q-ty Name of Inventory B unit Beginning balance Cost Unit 3 Total (45) 4 Income Cost Unit 6 Total 7
Prepared by: _______ on _____

Q-ty Expenditure Cost Unit 9 Total 10 Ending balance Cost Unit 12 Total 13
11
Total Prepared by: _____________________ Reviewed by: _____________________ date: date: 97
Fixed assets and assets registration form Name of cooperative . . . . . . . . . Fixed assets and assets /obtained from/ Label and # Date of registration Book value Change or decrease in price Decision . . . . . . . . . . . . Number . . . . . . . . . Date . . . . . . . . . . . . Account #
Person responsible
Accountant . . . . . . . . . . . .
Fixed assets and assets registration form Name of cooperative . . . . . . . . . Fixed assets and assets /obtained from/ Label and # Date of registration Book value Change or decrease in price Decision . . . . . . . . . . . . Number . . . . . . . . . Date . . . . . . . . . . . . Account #
Person responsible
Accountant . . . . . . . . . . . .
98
FIXED ASSET REGISTER Reporting period __________

Date of inception Date received Cost Useful life Expenditure Beginning balance Ending balance Income Asset Reg.# Acc. #
Prepared on ____________
Accumulated depreciation
Depreciation Beginning incurred during Deducted balance reporting month Residual value
Fixed assets name
No.
Ending balance
10
11
12
13
TOTAL
Prepared by: Reviewed by: date: date: 99
CALCULATION OF DEPRECIATION
Date Depreciation rate Amount Depreciation calculation Person's Date name Person in charge usage Person's period name
CALCULATION OF DEPRECIATION
Date Depreciation rate Amount Depreciation calculation Person's Date name Person in charge usage Person's period name
100
SAVINGS FORM
Account # ___________________ Membership # _________________ Full name: ____________________ Address, phone #: ___________________ Contract # ___________ Period: _____________ Interest: ___________ Currency unit: _______
Date
Deposit Income Expenditure
Interest Income Expenditure
Deposit
Balance Interest
Total
Signature
Signature specimen: Owner : Co-owner:
101
SUMMARY OF DEPOSIT ACCOUNTS Account No. . Currency: Reporting_________ year _______ month
Deposit Account Deposit Owner's Name Interest %
Prepared _______ month _____day

Interest
Beginning Balance
Debit
Credit
Ending Balance
Beginning Balance
Debit
Credit
Ending Balance
Total
Prepared: _____________________ Reviewed: _____________________
Date: Date:
102
SUMMARY OF PAYABLES AND OTHER PAYMENTS REGISTER Account No. . . . . . . . Reporting_________ year _______ month
Individual Account Number A Name of the Organization or Individual B Beginning Balance 1

Total 2 Credit Transaction 3 Ending Balance 4
Total Prepared: _____________________ Reviewed: _______________________ Date: Date: 103
REGISTER OF SHARE CAPITAL Member's name: _________________ No. Date

Document #
Family name: _______________ Expense Shares Balance Dividend Total
Transaction
Income
Total: Member's signature: Heir's signature : Home address: /duureg, khoroo, house# / Phone#: /home/ /office/ Membership ID #: Heir's ID #:
104
Name Cooperative: . . . . . . . . . . . . .. . . . . . . .. . . .
SUMMARY OF SHARE CAPITAL REGISTER

Account No. . . . . . . . Reporting _________ year _______ month Individual Account Number A Member's Name B Beginning Balance 1 Debit Transaction 2 Credit Transaction 3 Ending Balance 4
Total
105
Name of Cooperative: . . . . . . . . . .. . . . . . . . . . . . . . . . . .
DETAILED REGISTER OF EMPLOYEE'S SALARIES AND EQUIVALENT INCOMES Account No. . . . . . . . Reported_________ year _______ month
Total to be Paid Basic Salary Income tax Additional Salary

Other Total Deductions 13 14 15 Health Net Amount to be Paid 16 106 Out of Which: Salary deductions Social Security Withholdings Unemploy ment 10 Industrial Accident 11 Pension Benefit 9
Various Discounts
Advance 6
Number
Employee's Name
Bonus
12
Total Prepared: _____________________ Date:
Reviewed: _____________________ Date:
TRIAL BALANCE
Reporting Period Beginning Balance ACCOUNT NUMBER 1101 1104 1110 1111 1120 1121 1122 1123 1112 1113 1124 1125 1126 1127 1210-1213 1220-1223 1230 1240 1250 1255 1260 1265 1270 1275 1285 1301 1311 1320 1321 1401 1403 1501 Debit Credit Debit Transaction Credit Balance to be Adjusted Debit Credit Adjusting Entry Debit Credit Income, expense Debit Credit Debit Ending Balance Credit
107
Beginning Balance ACCOUN T NUMBER 1602 1605 1610 1611 1614 1626-1629 1630-1632 1636 1638 1641 1646 1651 1652 1653 1654 1701 1702 1703 1704 1705 1706 1707 1708 1709 1710 1801 1802 1803 1804 1805 1806 1901 1902 1903 1920 2201-2203
Transaction
Balance to be Adjusted
Adjusting Entry
Income, expense
Ending Balance
Debit
Credit
Debit
Credit
Debit
Credit
Debit
Credit
Debit
Credit
Debit
Credit
108
Beginning Balance ACCOUN T NUMBER 2205-2208 2210-2213 2215-2218 2301 2302 2303 2401 2402 2403 2404 2411 2412 2413 2414 2502 2503 2504 2505 2506 2507 2508 2509 2510 2511 2511 2514 2531 2532 2533 2534 2535 2536 2550 2555
Transaction
Adjusting Entry
Income, expense
Ending Balance
Debit
Credit
Debit
Credit
Debit
Credit
Debit
Credit
Debit
Credit
Debit
Credit
109
Beginning Balance ACCOUN T NUMBER 3101 3102 3103 3104 3105 3106 3107 3108 3109 3110 4101 4104 4105 4106 4107 4201 4202 4203 4204 4205 4206 4207 4208 4301 4302 4303 4304 4401 5102 5103 5104 5105 5201 5202 5203 5204 5212
Transaction
Adjusting Entry
Income, expense
Ending Balance
Debit
Credit
Debit
Credit
Debit
Credit
Debit
Credit
Debit
Credit
Debit
Credit
110
Beginning Balance ACCOUN T NUMBER 5213 5214 5215 5218 5219 5220 5221 5222 5223 5224 5225 5230 5231 5232 5233 5234 5235 5236 5237 5238 5239 5240 5241 5242 5243 5244 5245 5246 5247 5248 5249 5250 5251 5252 5253 5254 5301
Transaction
Adjusting Entry
Income, expense
Ending Balance
Debit
Credit
Debit
Credit
Debit
Credit
Debit
Credit
Debit
Credit
Debit
Credit
111
Beginning Balance ACCOUN T NUMBER 5302 5305 5401 5501 Adjusting entry:
Transaction
Adjusting Entry
Income, expense
Ending Balance
Debit
Credit
Debit
Credit
Debit
Credit
Debit
Credit
Debit
Credit
Debit
Credit
Taxable Income
Tax Expenses Net Profit
Prepared: _____________________ Reviewed: _____________________
Date: Date:
112
Name of cooperative: . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
GENERAL JOURNAL
Accounting period: No. Source code
Document Transaction description
date
Amount
Debit
Credit
Total amount
113
Name of Cooperative: . . . . . . . . . . . . . . . . . .. . . . . . . . . . .. .
CASH RECEIPT JOURNAL #

Account name: Account #:
Foreign currency accout Debit Exchange Amount Amount rate Credit accounts loan interest deposit currency translation #
Accounting period: . . . .
Other accounts' dt(cr) amount
No.
Date
Document #
TOTAL
Prepared by: _____________________ Reviewed by: _____________________
date: date:
114
Name of cooperative: . . . . . . . . . . . . . . . . .. . . . .
CASH RECEIPT JOURNAL #

Account name:
No. Date Document #
Account #:
Debit Credit accounts loan interest deposit
Accounting period:
Other accounts' . # dt(cr) amount
TOTAL AMOUNT: Prepared by: _____________________ Reviewed by:____________________ date: date: 115
Name of Cooperative: . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
CASH DISBURSEMENT JOURNAL #. . .

Account name: Account #:
Foreign currency account Credit Exchange Amount Amount rate Debit accounts loan interest deposit currency translation #
Accounting period:
No.
Date
Document #
TOTAL
Prepared by: _____________________ Reviewed by: _____________________
date: date:
116
Name of cooperative: . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ..
CASH DISBURSEMENT JOURNAL #___

Account name:
No. Date Document # Transaction description
Account #:
Credit Debit accounts deposit
Accounting period:
loan
interest
TOTAL:
Prepared by: ___________________ Reviewed by: _____________________
date : date : 117
Description to the block scheme of the system
Decision making
Manual processing
Documents, statements
Journal, ledger, chart
Other transactions
Document keeping file
Flow of data and information
Flow of data and information
Flow of information to be returned
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ACCOUNTING CYCLE IN SAVINGS AND CREDIT COOPERATIVES
Account
Transaction
Documentation
Sorting and classifying documents and transactions
Journalization
Journal
Recording to general and supporting journals
Sub-ledger
Posting to general ledger
General ledger
Preparing a trial balance
Trial balance
Preparing financial statements
Financial statements
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LENDING PROCESS
Member Loan Officer Loan Committee, Cooperatives Director Accountant Cashier
LA
LA
Conduct analysis
LA
Examine
Review Decision
Preparea CRF
Pay cash
CRF
CRF
Recording in CRJ
Update a LoA
Update a CB
Analysis report and tables
Analysis report
CEB
LoA
General ledger Trial balance
Update a LL
CB
Cash docume nts
Sign a loan agreement Approve
Agreement
LF
Balance sheet
LL
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LOAN REPAYMENT PROCESS

Member Loan Officer Accountant Cashier
Prepare a CRF
Request for repayment
GRF
Examine
Receive cash
CRF
Update a LA
Update a CB
Recordin g in CIJ
LA
Update a LL
CIJ
General ledger
CB
Trial balance
Income statement
LL
Cash documents
Balance sheet
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PROCESS FOR RECRUITING MEMBERS

Member Cooperatives Director Cooperatives Board Accountant Cashier
Submit an application
Application
Application
Prepare a CRF
Receive cash
CRF
Analyze, submit a proposal Review a proposal Decision Recording in CRJ Update a MCCJ
CRF
Keep a CB
Submit an applicati on for capital cotribution
Sign an agreement
CRJ
Agreement
MCCJ
CB
General ledger
Update a MCCL
MPF
Trial balance
Members Book MCCL
Cash docume nts
Signat ure in
Keep a MB
Balance sheet
Members Book
122
MEMBERSHIP TERMINATION PROCESS

Member Cooperatives Director Cooperatives Board Accountant Cashier
Request for membership termination
Submit an application for membership termination
Submit an application for membership termination
Calculate dividends
Prepare a CDF
Pay cash
Dividend computation table Decision
CDF
CDF
Recording in CDJ
Keep a MCCJ
Update a CB
Review
MPF CDJ
MCCJ
CB
Archives
General ledger
Keep a MCCL
Cash docume nts
Trial balance
Memberss Book
MCCL
Notes to MB
Keep a MB
Balance sheet
Members Book
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DEPOSIT TAKING PROCESS

Member Cooperatives Director Accountant Cashier
Submit an application for opening a deposit
Sign a deposit agreement

Agreement
Prepare a CRF
CRF CRF
Keep a Deposit Card
Receive cash
Recording in CRJ
Check
Update a CB Deposit Card

CB
Update a DJ
CRJ
General ledger
Cash documents
Trial balance
Balance sheet
DJ
124
PROCESS OF MAKING OPERATING EXPENSES AND PURCHASING ASSETS

Receive cash
Prepare a CDF
Invoice
Approve
If it is cash on hand payment
CDF
Recording in CDJ Examine
CDF
Update a AR
Update a CB
CDJ
AR
CB
General ledger
Trial balance
Balance sheet
Cash voucher documents
125
DEPOSIT WITHDRAWAL PROCESS

Compute interest
Request for money withdrawal
Prepare a CRF
CRF
Pay cash
CRF
Review
Interest computation list
Recording in CRJ
Update a Deposit Card
Update a CB
Deposit Card
CB
CRJ
Keep a DJ General ledger Cash voucher voucher
Trial balance
DJ
Balance sheet
Income statement
126
ACCOUNTING MANAUL FOR SAVINGS AND CREDIT COOPERATIVES
CHAPTER FIVE
SAMPLE PROCEDURES OF INTERNAL CONTROL, RULES OF CONDUCTING CONTROLLING ACTIVITIES One. Structure of cooperatives internal control A cooperative shall set up a system of internal control in order to ensure profitable business operations, prevent illegal actions and faults, ensure timely preparation of financial statements and observation of financial rules. The internal control is the managements main instrument of implementing its controlling function. The internal control is the organizational structure, methods and rules of controlling set up by the management in order to manage and carry out successful business activities. The internal control is aimed at controlling whether the accounting, financial and other procedures and activities of the enterprise are carried out properly and informing the management of errors occurred. The internal control system of the cooperative shall comprise the following parts: !" Internal control environment !" Accounting structure !" Internal controlling rules 1. The controlling environment is the managements policy and position toward the cooperatives internal control and activities carried out by the management. This includes the following: A document determining managements policy and its methodologies; Cooperatives organizational structure shall be approved by the respective management and implemented accordingly; The cooperative shall have its governing board and internal control committee and procedures of their activities shall be determined; The rights and responsibilities of the cooperatives management and employees shall be determined; The cooperative shall have a structure of internal control planning and shall plan its internal controlling activities; The rights and responsibilities of the internal control committee shall be determined; The management shall have controlling methods determined; Relations with the employees shall be determined; External impact (analysis, information)
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2. The accounting structure is the accounting policy pursued by the cooperative and accounting system used, which includes the following: !" The cooperative shall have a document which determines its accounting policies, organizational structure, technical and methodological issues etc; !" The organizational structure of the accounting department and accountants job descriptions; !" The cooperative shall have a document determining its methods of compiling supporting documents and structure of accounting information system; !" The cooperative shall have its own accounting manual; !" The cooperative shall have a procedures determined for preparing its financial statements; !" The cooperative shall have its control imposed on its accounting. The accounting maintained in the cooperative should be lawful, approved, complete, should enable grouping and summarizing and should have reports prepared etc. 3. The controlling procedures are the tools and methods of implementing the policies and activities of the internal control. The controlling procedures should observe the following requirements: !" Duties and responsibilities should be clearly defined; !" Activities and transactions should be recognized; !" Activities and transactions should be documented and recorded properly; !" Ensure the reliability of the preservation and utilization of assets; !" Carry out independent controlling activities. The independent internal controlling activities shall be carried out by a controlling unit appointed by the management and in the case of the cooperative this shall be the responsibility of the internal control committee, or the full-time auditor if deemed necessary. These procedures shall set up the rules for organizing and carrying out of the independent internal control. Two. Issues to be regulated by internal rules of controlling 1. The duties and responsibilities of the cooperatives internal control committee, its activities and relations arising from the activities shall be determined in the internal controlling rules. 2. The objective of the controlling is to ensure efficient expenditure and preservation of assets, protect the rights and interests of the members, control how the cooperatives aims are implemented and to regulate the relations arising from the implementation of the full rights of the members of the internal control committee in compliance with the Banking Law and the cooperatives Charter. 3. The Internal control committee shall abide by the cooperatives Charter, the Law on Cooperatives of Mongolia, the Banking Law, the Law on Deposits, Transactions and Loans and other laws and regulations as well as the decisions of the meeting of all members.
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Three. Management and organizational structure of the internal control committee 1. In order to determine, correct and prevent any risks that the cooperative may encounter, the internal control committee shall be given the right to audit all operations of the cooperative. 2. The internal control committee is an independent unit, which protects the rights of its members and provides them with all necessary information by way of controlling, inspecting, analyzing and summarizing the cooperatives operations. 3. The internal control committee shall report to the meeting of all members and shall be independent from the cooperatives management. 4. The members of the internal control committee shall be appointed by the meeting of all members. 5. The internal control committee shall be headed by a Chairman appointed by the meeting of the members of the internal control committee. 6. The Chairman shall determine the objectives of the activities of the internal control committee, roles and responsibilities of the internal control committee members, manage the activities of the committee and control its performance Four. Rights and Responsibilities of the internal control committee The Chairman and the members of the internal control committee shall have the following obligations: 1. Develop and implement a plan of action of the internal auditing, which covers operations of a cooperative. 2. The controlling activities should watch whether the cooperatives objectives, decisions made by the meeting of all members and the management and the cooperatives operations are being implemented in compliance with the laws and regulations. In case any discrepancy is revealed, measures should be taken to eliminate it. 3. The reports on auditing should be complete and evidenced by concrete documents. 4. The Chairman and the members of the internal control committee shall be responsible for the accuracy of the auditing reports, their evidences and computations. 5. The Chairman and the members of the internal control committee shall respect the laws and regulations, protect the legal rights of the members and be independent. 6. The Chairman and the members of the internal control committee shall keep the confidentiality of the information obtained during the audit and shall not use for their own and others purposes. 7. The reports on auditing, evaluation of the cooperatives operations based on it and any proposals on measures to be undertaken shall be presented to the meeting of the governing board and the meeting of all members. 8. A control over the implementation of the decisions made by the cooperatives management shall be imposed. 9. The Chairman and the members of the internal control committee shall be responsible for the elimination of errors revealed by external audit. The Chairman and the members of the internal control committee shall have the following rights
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1. Obtain from the respective employees information on cooperatives operations, reports, studies and other documents needed for conducting the control. 2. Select the appropriate scope and work procedures, which would ensure effective controlling. 3. Verify whether certain activities of the cooperatives employees violated laws and regulations or not and in case any violation is revealed, appropriate measures shall be undertaken to eliminate these, including approaching legal organizations if it is deemed necessary. 4. Make conclusions on the results of the control and make recommendations. 5. Receive salaries and bonuses on the basis of respective decisions and regulations. Conditions for exercising the rights 1. The cooperative and its employees shall fulfill the decisions and requests made by the internal control committee within the stipulated period and report officially. 2. In case the cooperative or its employees regard the conclusions and decisions of the internal control committee unlawful, they shall have the right to prepare a complaint and present it to the meeting of the governing body, meeting of all members or to a legal institution. Such a complaint shall not be the reason for stopping the implementation of the internal control committees decisions and recommendations. 3. Those employees who have refused to cooperate with the members of the internal control committee or have not performed the tasks within the stipulated period and caused impediments to the controlling process, shall be subject to respective laws and regulations. 4. The internal control committee may cooperate with the Chairman of the cooperative, members of the governing board and professionals in order to exercise its controlling duties and resolve certain decisions. 5. The internal control committee shall conduct its controlling activities in accordance with a plan and schedule approved by the meeting of all members and the members of the governing board. If it is deemed necessary, the internal control committee may conduct extraordinary control. 6. In case a member of the internal control committee failed to perform his/her duties and/or violated the law, he/she shall be subject to the cooperatives Charter, its internal regulations or relevant laws and regulations or his/her membership in the cooperative or internal control committee shall be terminated. Five. Controlling procedures Procedures conducting the control One of the following procedures or their combination may be employed when conducting control: 1. Observation 2. Physical test 3. Reconciliation 4. Analysis
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5. Questionnaire 1. The observation method is used when the labor distribution, relationship among employees, employees enthusiasm, time usage, members comments and complaints are studied and a conclusion is made on the basis of these. 2. The physical test is employed when making physical counting of the assets or reconciling records and transactions with original documents. 3. The reconciliation is the comparison of account balances and transactions amounts are compared with those of the third party. 4. The analytical method evaluates the cooperatives present financial position and determines its future trends by using analytical tools. 5. The questionnaire method uses questions prepared in advance for the employees and members. The answers are collected and the results are consolidated on the basis of which conclusions are made. Operations and management of cooperative The control is conducted in order to evaluate the following issues of the cooperative in regard to its management and structure: 1. Completeness of the legal documents observed by the cooperative, their implementation, level of the employees knowledge on laws and regulations and how the legal documents are updated. 2. Whether the resolutions and decisions of the cooperatives management comply with the laws and regulations, its internal rules and regulation. 3. How the implementation of the decisions from the meeting of all members and the governing board are construed and monitored. 4. Whether the income plans for the accounting period is being met and the expenses are under control and expended in accordance with approved budget and designations. 5. Recruitment of professional staff in accordance with the staffing plan and compiling of personal files for each employee. 6. Regulations on the allocation of duties and responsibilities, implementation of internal labor regulations, status of labor contracts with the employees and evaluation of their performances, punishments and premiums/bonuses applied. 7. Plan of the executive management, compiling of directors resolution and minutes of the meeting of the executive management and the staff meeting, control over the implementation of decisions etc. 8. Whether the files, decisions and resolutions, official letters, minutes, auditing reports, contracts and other documents are prepared and compiled in accordance with the basic filing instructions and standards. 9. The status of the cooperatives safety and security. 10. Compiling of files by each employee, internal ethics, resolving of employees complaints, proposals and requests. 11. Management methods applied by the management. 12. Measures undertaken by the management to handle the employees social issues and exchange of opinions on these.
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Cash control Objectives 1. Whether the cash in vault and cash with banks and financial institutions is complete and duly reflected in the books. 2. Cash receipts and cash payments are executed on the basis of relevant documents and duly approved in compliance with the cooperatives internal regulations. 3. Evaluation of the control imposed on cash transactions and the level of safety and security.
Procedures of controlling 1. Acquaint with the cooperatives procedures of making cash transactions, booking and controlling and cash counter operations. 2. Physical control of cash documents and bank statements of the current accounts with banks and financial institutions (completeness of the signatures who gave authorization, prepared transaction documents, and made payment and completeness of attachments etc.) 3. If deemed necessary, count the cash in vault, compile an official document and reconcile with the books; execute the same by reconciling earlier counting with cash balances of books. 4. Audit the initial accounting for cash (cash report, cash journal), its correctness and compliance with the relevant accounting procedure. 5. Reconcile the cash journals with cash reports and supporting documents. 6. Audit cash receipts and cash payments in the journals and control for errors. 7. Reconcile current account balances with banks and financial institutions and the certification of account balances with the records of the cooperative. 8. In case a savings account is placed at a bank or financial institution, audit whether the transactions and compliance with the provisions of contracts. 9. Calculate interest rates in accordance with the provisions of the contracts and reconcile the results with the cooperatives records to check their correctness. 10. Study the structure of cash receipts and cash payments and make conclusions and proposals on any possible improvements.
Loans control Objectives 1. Examine whether the loan approval, disbursement and repayment activities are in accordance with the cooperatives internal procedures. 2. Examine whether the loan amount matches with the payables of the borrower and whether the records are duly made. 3. Check whether the loan is classified accordingly and correctly.
132
4. Check whether the certain amounts (interests, penalties) and certain issues (contract provisions, collateral) are duly reflected. 5. Examine the reasoning of establishing a reserve for loss and the reasoning of classifying a loan as bad. Procedures of controlling 1. Acquaint with the loan regulations and procedures observed by the cooperative, activities of the credit committee, meeting minutes and decisions. 2. Reconcile the report on loans prepared by each borrower with account balances. 3. Examine loan files and check whether the provisions of collateral agreements are fully reflected, whether these are approved by relevant authorities and registered at notaries and assets registration authority. 4. Check whether the loan is disbursed on the basis of the relevant decision by reconciling it with the decision of the credit committee and whether the disbursement documents are duly compiled. 5. Compare the repayment of loan principal and loan interest with the repayment schedule reflected in the loan file. In case of overdue payment, check whether due payments have been made. 6. Acquaint with loan repayment records, reports prepared by loan clerk on the monitoring of the loan repayment and documents related to loan collateral. If deemed necessary, meet with the borrower and acquaint with his/her business operations and, thus evaluate the quality of the loan. In case of unsatisfactory results, make the reclassification of the loan and compare with the records of the cooperative and if discrepancies are revealed, propose steps to abolish them. 7. Based on the reclassification of the loan, re-establish the reserves for loan loss and compare them with the cooperatives reserves and in case of discrepancies, propose appropriate steps. Examine documents of loans closed by the loan loss reserve, decisions, approvals and reasoning related to these. 8. Audit the booking of individual loan accounts and the accuracy of the calculations of monthly accrued interests, check their repayment. If there are loans whos accrued interest calculations stopped, the respective decisions and reasoning shall be examined. The calculations and payments of interest of closed loans shall be examined at random. 9. Acquaint with the actions of the cooperative taken regarding bad loans and assess them, propose further steps to be undertaken. 10. Examine and compare loan reports with loan files and accounting books, check for their correctness and completeness. 11. Evaluate loan operations, policies and strategies and develop and propose measures to improve and upgrade them. Other assets owned Purposes 1. To check whether other assets owned are in cooperatives possession, or were received as a repayment of a loan, or are for sale and also whether were recorded duly in records.
133
2. To ensure the correctness of the recorded amount. 3. To ensure appropriate management control and to assess the measures to undertake for sale of the assets.
Review Procedures 1. To get introduced with procedures for receipt of other assets owned as repayment of a loan, for sale and for valuation discount. 2. To review the detailed report of other assets owned and to check its consistence with transaction and control balance accounts. 3. To check if individual files for each asset contain all the documents including the decision to receive as a loan repayment, valuation reports, certificates on immovable property and assets and whether the way of transfer of possession was done properly. 4. To focus attention on whether the original cost was recorded as a fair market value in particular, and, if received as a payment of a loan with an overly high value, to clarify the justification from an official in charge of the decision. 5. To determine the quality and status of an asset by personal examination and to assess consistence of current record cost with the market value. 6. If the cooperative previously made valuation discount to adjust to market prices, to study discount reports, decisions, and market prices and to asses whether there was an appropriate justification. 7. To check transaction by transaction whether current expenses related with other assets owned, gains and losses from sales incurred during the period covered by the review and assess the properness of recording. 8. To get introduced with the cooperatives reports on sales of other assets owned and to comment and recommend on future actions. Other receivables and settlements Purposes 1. To determine whether receivables, future period payments and other payments reflect valid claims by members and employees and whether they are recorded correctly in books. 2. To verify the correctness of valuation and classification of receivables and to assess the justification of loss provisions.
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3. To evaluate whether there is a due control process and timeliness of receivables and settlements.
Review Procedures 1. To get introduced with terms for recognition of receivables and settlements and procedures for transactions. 2. To obtain detailed list of receivables and settlements, to examine original receipts and records proving the initiation of each of receivables and to asses whether justification, decision and approval of receivables followed the due process. 3. To check all payments after the initiation of a receivable and other payments by documents and transactions and to asses the timeliness of their settlement. 4. To sort advance payments to suppliers and contractors, to check their consistency with the verification documents and legal acts and to asses the future gains for the cooperative. 5. To asses quality of receivables and settlements, to evaluate in comparison with the cooperatives classification, and if there are past due receivables, to ensure that they are classified and recorded appropriately. 6. To see whether unreliable receivables count potential risk provisions according to the internal procedures, to repeat the risk provision calculations, compare them with the cooperatives risk provisions and request correct ion of discrepancies. 7. To get introduced with the report of the cooperative on its activities on settlement of unreliable receivables, and to assess it and to make recommendations for future activities.
Inventory Purposes 1. Ensure that inventory was recorded by real value. 2. To check whether inventory is composed of inventory in hands. 3. To assess whether there is an appropriate level of expenditures, utilization and control of inventories. Review Procedures 1. To get introduced with procedures for inventory transactions and recordings.
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2. To obtain the inventory balance list and inventory records and to compare them with the book balance. 3. To check the consistence of recorded totals with primary documents on income and expenses, with storage books and storage keepers reports. 4. To count physically some selected inventory items. 5. To asses the properness and the status of utilization, expenditure and control over inventory and to make recommendations on improvement.
Fixed assets Purposes 1. To prove that fixed assets are in cooperatives own possession and that they are actually in existence by the time of control. 2. To verify that all the capitalization costs were duly accrued, correctly classified and recorded. 3. To verify that depreciation was discounted by a due amount and the defined term of an asset was justified. 4. To assess whether appropriate requirements for asset recording, transactions and control are met.
Review Procedures 1. To get introduced with procedures for approval of asset purchase, disposal and recording. 2. To compare the consistency of detailed fixed assets records with control account balance, of detailed record with asset card for each fixed assets item. 3. To check the consistency of the record of fixed assets count with detailed record, and to carry out a count if necessary. 4. To verify the cost of fixed assets with material value and to assess whether capitalization costs were duly reflected. 5. To evaluate the correctness of the fixed assets classification.
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6. To check the calculation of fixed assets depreciation, to compare the calculated amounts with records in the registration, and to assess the justification of terms for depreciation. 7. To check significant transactions that incurred during the period covered by the review, to assess the correctness of a transaction on fixed assets write-off from accounts and the correctness of definition of gains and losses of the write-off from accounts. 8. In order to define purchasing responsibilities, to check significant negotiations and management decisions. 9. To evaluate recording, utilization and control of fixed assets and recommend and assign duties on improvement of weaknesses.
Deposits Purposes 1. To define that deposit reflects valid payables accumulated from cooperative members. 2. To assess whether legal acts and internal procedures of the cooperative are enforced in activities of the cooperative. 3. To verify due reflection in records. 4. To determine whether interest payment was correctly calculated and whether they are recorded in due reporting period and to assess whether interest rate was defined objectively. 5. To assess whether members deposits are complete, safe, and whether control over deposits meets the necessary requirements.
Review Procedures 1. To get introduced with the procedures for deposit activities including opening a deposit, making a withdrawal and paying interests. 2. To obtain detailed list and records of deposits, to check their consistence with control account transactions and balance, and to check the consistence of the detailed record with transactions and balance for each deposit card. 3. To obtain all deposit agreements, to check whether all necessary terms are fully incorporated, whether these agreements comply with requirements of a legal documents, in case of a change in general terms of activities by a cooperative, to check whether there are provisions on how to handle these changes, and in general, whether terms of and
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changes in agreements are fully covered; to compare agreements with deposit cards to ensure that changes in agreement terms are correct and fully counted for in records and transactions. 4. To obtain the list of deposit interest amounts paid at the end of a month and transactions calculating mid-month interests and recalculate them, to check how changes in terms of agreements are incorporated in interest rate and its calculation, to check the consistence of recalculated amounts with records on cards and with accounting records and to define to correctness of records on accounts. 5. To check some transactions on deposit revenue expenditure by comparing with original documentation and, if necessary, to make a verification call to deposit owner. 6. To asses the cooperatives management control over deposit record and transactions, to identify flaws and weaknesses in deposit activities and to recommend and assign tasks for improvement.
Other Liabilities Purposes 1. To verify that liabilities reflect valid payables to creditors, members, suppliers and contractors and that they are duly recorded in accounts and books. 2. To determine whether payables are recorded as accrued. 3. To duly classify payables and to verify that the totals and other relevant issues are incorporated as appropriate.
Review Procedures 1. To obtain detailed list of payables, to check its consistence of the balance with the control account, to check whether detailed list is consistent with detailed record for each of payables. 2. To assess the correctness of classification of payables (long and short term, internal payables, advance payments of income, resources drawn from banks and financial institutions, other resources, accrued payables etc.) 3. To check new payables created during the review on consistence with cash receipt journal and original documentation.
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4. To obtain legal acts for significant payables and resources drawn from banks and other financial institutions and other sources and to asses whether these payables are recorded in accordance with the terms and principles of agreements. 5. To check some payables by calling the creditor, if necessary. 6. To asses how changes in terms of agreements are incorporated in calculations and records of interests and commissions and to check whether interest rates match the amounts in agreements and verifications. 7. To re-calculate interest and commissions repayments on a source and to compare the results with the records. 8. To re-calculate accrued payables and to compare the results with the records. 9. To asses the management control over liabilities and its flaws and weaknesses and to recommend and assign tasks for improvements.
Cooperative Owners Equity, Paid-In Capital Purposes 1. To identify the real equity of cooperative owners at the time of review. 2. To check whether statute and internal regulations of cooperative are enforced in recruitment and dismissal of members and distribution of dividends.
Review Procedures 1. To get introduced with principles, regulations and procedures for recruitment and discharge of members, capital pay-in and pay-out and profit allocation. 2. To obtain proceedings, decisions of all members assembly and board of directors of the cooperative and files on members and to check whether a member voluntarily joined/was discharged from the cooperative and whether the decision on his/her association was made in due course and whether each members paid-in capital was dealt in accordance to the statute. 3. To obtain detailed record of members paid-in capital and to check its consistency with the control account transactions and balance and to compare the detailed record with the individual sub-account record on paid-in capital.
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4. To recalculate distribution of dividends; to compare the results with accounting records and with the names account record on paid-in capital. 5. To assess whether governing body decision-making procedures are enforced in transactions on allocation of profits into dividends and special funds at the time of review. 6. To compare transactions from special purpose funds with original documentation and ensure that purposes are legitimate and appropriate authorization were issued. 7. To check the correctness of disbursal and recording in accounts of each transaction in other deposit accounts. 8. To asses flaws and weaknesses of cooperative owners registration and other membership issues and to identify future actions and assign tasks for improvements.
Income and expenses Purposes 1. To define timeliness of income and expenses reporting. 2. To verify correctness of classification of income and expenses. 3. To determine the consistency of income and expenses with planned and budgeted amounts approved by purposes and by line items.
Review Procedures 1. To obtain general terms of activities, decisions on changes in them, agreements and contracts with external parties. 2. To analyze income and expense accounts by line items in comparison with performance during previous periods, approved budget and plan and, in case of discrepancies, over expenditures and savings, to identify the causes. 3. To check original documents for large amount of income and expenses, to review their authorization and completeness of documentation, and to compare with terms of activities, agreements, and reports and proceedings evaluating their fulfillment. 4. To recalculate accrued income and expenses and to asses how their results are recorded. 5. To analyze the trends in income and expenses, to prepare comments and recommendations on improvement in further efficiency of the cooperative, to evaluate
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weaknesses and flaws in recording and transactions of income and expenses and to assign tasks for improvement.
Salaries and Other Benefits Purposes 1. To ensure that activities on allocation and disbursement of salaries and wages, calculation and payment of taxes and commissions follow legal acts, cooperatives internal regulations and labor contracts. 2. To ensure that salaries and wages are correctly calculated, classified and recorded appropriately in books. 3. To check whether salaries and wages and related amounts are correctly accrued within the reporting period and recorded in books. 4. To asses whether other benefits and discounts provided to employees and members are consistent with principles and provisions of legal acts, cooperatives internal regulations and procedures.
Review Procedures 1. To study internal rules, employment agreements with employees, agreements with members, and other internal regulations pertaining to other benefits and discounts. 2. To obtain payrolls and on list for other benefits and discounts, recalculate amounts payable and paid, to check the recording of results in books and to compare with original receipts. 3. To determine whether salaries and payments are supported by appropriate decisions and match the amounts defined in agreements. 4. To check the consistence of totals in payrolls and other payment lists with social security payment report and population income tax reports. 5. To check recording of estimated and reported totals of social security payments and population income taxes and their payments to relevant agencies, to compare them with original receipts and documentation and to define current receivables and payables. 6. To check line by line all the salaries, wages, benefits and discounts to members of the cooperative and temporary contractors, and to define whether relevant withholdings of taxes and commissions were done in accordance with laws and regulations and recorded in accounts and books of relevant agencies.
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7. To ensure that unpaid salaries and payables are accrued in relevant amounts and for the relevant periods. 8. To evaluate flaws and weaknesses in salaries and payments and to recommend and assign task for improvement.
Income Taxes Purposes 1. To ensure correctness of calculation of taxable income. 2. To define the correctness of amounts for income tax expenditures.
Review Procedures 1. To recalculate the taxable income and define causes if there are discrepancies. 2. To calculate the correct amount for salary expenditures, to check documentation for tax payments and to define current income tax receivables and payables. 3. To identify the basic and temporary discrepancies between financial profit and tax profit, and to define and recommend methods for its settling.
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UNDP

ACCOUNTING MANUAL FOR SAVINGS AND CREDIT COOPERATIVES

Edited by: S.Sukhbat, Auditor D.Batjargal,Auditor

Funded by Microstart project, UNDP-Mongolia

Approval of the manual

ACCOUNTING MANUAL FOR SAVINGS AND CREDIT COOPERATIVES

institutions, other payment instruments and cash equivalents. 2.1.2 Valuation

ACCOUNTING MANUAL FOR SAVINGS AND CREDIT COOPERATIVES

ACCOUNTING MANUAL FOR SAVINGS AND CREDIT COOPERATIVES

ACCOUNTING MANUAL FOR SAVINGS AND CREDIT COOPERATIVES

ACCOUNTING MANUAL FOR SAVINGS AND CREDIT COOPERATIVES

ACCOUNTING MANUAL FOR SAVINGS AND CREDIT COOPERATIVES

ACCOUNTING MANUAL FOR SAVINGS AND CREDIT COOPERATIVES

ACCOUNTING MANUAL FOR SAVINGS AND CREDIT COOPERATIVES

ACCOUNTING MANUAL FOR SAVINGS AND CREDIT COOPERATIVES

ACCOUNTING MANUAL FOR SAVINGS AND CREDIT COOPERATIVES

ACCOUNTING MANUAL FOR SAVINGS AND CREDIT COOPERATIVES

ACCOUNTING MANUAL FOR SAVINGS AND CREDIT COOPERATIVES

ACCOUNTING MANUAL FOR SAVINGS AND CREDIT COOPERATIVES

ACCOUNTING MANUAL FOR SAVINGS AND CREDIT COOPERATIVES

ACCOUNTING MANUAL FOR SAVINGS AND CREDIT COOPERATIVES

ACCOUNTING MANUAL FOR SAVINGS AND CREDIT COOPERATIVES

ACCOUNTING MANUAL FOR SAVINGS AND CREDIT COOPERATIVES

ACCOUNTING MANUAL FOR SAVINGS AND CREDIT COOPERATIVES

ACCOUNTING MANUAL FOR SAVINGS AND CREDIT COOPERATIVES

ACCOUNTING MANUAL FOR SAVINGS AND CREDIT COOPERATIVES

ACCOUNTING MANUAL FOR SAVINGS AND CREDIT COOPERATIVES

ACCOUNTING MANUAL FOR SAVINGS AND CREDIT COOPERATIVES

ACCOUNTING MANUAL FOR SAVINGS AND CREDIT COOPERATIVES

ACCOUNTING MANUAL FOR SAVINGS AND CREDIT COOPERATIVES

2.9 INTANGIBLE ASSETS 2.9.1 Components of intangible assets

ACCOUNTING MANUAL FOR SAVINGS AND CREDIT COOPERATIVES

ACCOUNTING MANUAL FOR SAVINGS AND CREDIT COOPERATIVES

ACCOUNTING MANUAL FOR SAVINGS AND CREDIT COOPERATIVES

3.1 DEPOSITS 3.1.1 Components of deposits

ACCOUNTING MANUAL FOR SAVINGS AND CREDIT COOPERATIVES

ACCOUNTING MANUAL FOR SAVINGS AND CREDIT COOPERATIVES

ACCOUNTING MANUAL FOR SAVINGS AND CREDIT COOPERATIVES

ACCOUNTING MANUAL FOR SAVINGS AND CREDIT COOPERATIVES

ACCOUNTING MANUAL FOR SAVINGS AND CREDIT COOPERATIVES

ACCOUNTING MANUAL FOR SAVINGS AND CREDIT COOPERATIVES

ACCOUNTING MANUAL FOR SAVINGS AND CREDIT COOPERATIVES

ACCOUNTING MANUAL FOR SAVINGS AND CREDIT COOPERATIVES

ACCOUNTING MANUAL FOR SAVINGS AND CREDIT COOPERATIVES

ACCOUNTING MANUAL FOR SAVINGS AND CREDIT COOPERATIVES

ACCOUNTING MANUAL FOR SAVINGS AND CREDIT COOPERATIVES

ACCOUNTING MANUAL FOR SAVINGS AND CREDIT COOPERATIVES

ACCOUNTING MANUAL FOR SAVINGS AND CREDIT COOPERATIVES

ACCOUNTING MANUAL FOR SAVINGS AND CREDIT COOPERATIVES

ACCOUNTING MANUAL FOR SAVINGS AND CREDIT COOPERATIVES

ACCOUNTING MANUAL FOR SAVINGS AND CREDIT COOPERATIVES

ACCOUNTING MANUAL FOR SAVINGS AND CREDIT COOPERATIVES

ACCOUNTING MANUAL FOR SAVINGS AND CREDIT COOPERATIVES

ACCOUNTING MANUAL FOR SAVINGS AND CREDIT COOPERATIVES

ACCOUNTING MANUAL FOR SAVINGS AND CREDIT COOPERATIVES

Accounting for foreign currency trading

ACCOUNTING MANUAL FOR SAVINGS AND CREDIT COOPERATIVES

ACCOUNTING MANUAL FOR SAVINGS AND CREDIT COOPERATIVES

ACCOUNTING MANUAL FOR SAVINGS AND CREDIT COOPERATIVES

ACCOUNTING MANUAL FOR SAVINGS AND CREDIT COOPERATIVES

ACCOUNTING MANUAL FOR SAVINGS AND CREDIT COOPERATIVES

ACCOUNTING MANUAL FOR SAVINGS AND CREDIT COOPERATIVES

_______________ togrog mongo TOTAL AMOUNT In words:

Approved by: _ Accountant:__

Paid by: ___ Received by:

_______________ togrog mongo TOTAL AMOUNT In words:

Approved by: _ Accountant:__

Paid by: ___ Received by:

In words: _ ________

Accountant: _ Reviewed by: _______

In words: _ ________

Accountant: _ Reviewed by: _______