Cooperative Society Accounting: Issues & Best Practices

In India, accounting for cooperative society (societies) is governed primarily by legal mandates such as the Societies Registration Act 1860. In accordance with these mandates, societies are required to keep comprehensive records of all financial transactions. It is not uncommon for societies to struggle with maintaining accurate financial records, which can cause discord between the members and the management or board. 

It has shifted from manual bookkeeping to a digital accounting system, which has transformed how societies manage their accounts; the management committees of societies can reduce their workload significantly with the right accounting software package for cooperative housing society accounting, especially since it also improves transparency and compliance. By regularly monitoring all transactions and moving to cashless payments, societies can better maintain their records. In addition to improving record-keeping processes, societies can also become more diligent in complying with statutory obligations or requirements like TDS and GST filings. Society accounting can now be done digitally with NoBrokerHood cooperative society management software. 

Also Read: Choosing the Right Accountant for Your Apartment Society: What to look for

Common Accounting Issues Faced by Cooperative Societies

The nature of accounting records required by cooperative societies is notably different from traditional businesses. 

The main issues facing societies from an accounting stand-point include:

1. classifying a member’s shares as equity or liability,
2. revenue recognition — there can be multiple performance obligations involved,
3. difficult financial record-keeping while complying with principles of cooperation and compliance obligations, 

It is not uncommon for societies to also experience weaknesses in internal controls. These can include internal control weaknesses using the framework established by the Committee of Sponsoring Organizations of the Treadway Commission, which focuses on financial reporting risk. 

Some common internal control weaknesses are:

1. no adequate segregation of duties,
2. the transaction records provided by a member are not complete,
3. delays in financial reporting,
4. complex requirements for statutory compliance.

There is a lack of cohesiveness at state and national levels associated with the accounting systems that apply to cooperative accounting.  

1. Current accounting standards are not consistent with cooperative values and principles.
2. It is difficult to demonstrate the socio-economic contributions made with cooperative financial statements.

Financial constraints: 

Many cooperatives are unable to raise capital to employ trained accountants and to maintain and safeguard records. This impacts the financial management of the society. 

Guidelines for Cooperative Society Accounting 

Robust accounting practices are the cornerstone of financial stability for a cooperative society. A reputable society accounting system enhances transparency, and builds trust among its members and stakeholders.

1. Maintain Accurate Records Accurate records are the starting point of cooperative accounting. Records must explain the transaction, financial position, and financial performance in a clear enough manner that these can be understood. Organizations must hold these records for a period of 7 years in order to prepare audited financial statements. 
2. Separation of Duties Separation of duties is the process of dividing tasks so that errors and fraud can be prevented. This is especially important to separate the following three basic functions: 

• Authorization of transactions
• Custody of assets 
• Recording of transactions
• Reconciliation of balances 
• Final accounts of cooperative society 

3. Establishing Strong Internal Controls Establishing internal controls enables the protection of society assets and identifies enhancements to the effective operation of authority in the cooperative society. Internal controls should include the authorization of expenses, the handling of cash, protection of the asset, and safeguards for documents and records.
4. Regular Financial Reviews Monthly reviews of income statements, balance sheets, and cash flow statements help identify financial issues early and guide better planning.
5. Compliance with Tax Regulations Maintain proper documentation for tax purposes. File TDS returns regularly, update challan details, and capture GST data accurately to avoid penalties.
6. Adoption of Updated Accounting Software Modern accounting software for cooperative housing society simplifies financial management. Choose budget-friendly options that offer complete functionality. NoBrokerHood cooperative society management software is ideal for easy society accounting.
7. Minimizing Cash Transactions Digital transactions enhance transparency. Use mobile banking, net banking, and UPI to reduce cash handling. Cooperative banks using Core Banking Solutions can issue ATM/debit cards. Societies should budget, invest surplus funds, maintain separate accounts, and establish reliable cash planning systems to reduce risk.

Annual Financial Management Processes

Annual financial management processes are essential for proper financial management of societies. The key activities include:

• Preparation of monthly trial balances and monthly adjustments
• Preparation and submission of audit reports within six months of the year’s end
• Retention of accounting records for a minimum of ten years

The annual audit, which must be performed within 60 days after a financial year-end, reconciles at a minimum the cash balances, securities, and debts overdue. The board members must also ensure adequate internal controls and appropriate management of financial and accounting records during the full fiscal year! Audited financial statements should be circulated and reviewed at the Annual General Meeting (AGM) within the six-month time limit allowed after the financial year-end.

Society Accounting System by NoBrokerHood

NoBrokerHood’s society accounting software has been designed specifically to solve the financial problems facing cooperative housing societies. It is an end-to-end solution that simplifies record-keeping, compliance, and transparency. Automated billing and real-time expense tracking, along with digital ledger/workbook management, eliminate manual work and human errors. Treasurers and management committees can generate reports, deal with member contributions, file TDS and GST more easily. The software supports cashless transactions through UPI and bank integrations, facilitating a move towards digital-first, audit-ready, cooperative accounting. We play an active role in how societies maintain their financial records accurately, make better financial decisions, and operate with legal conformity.

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FAQ’s

Q1. What are the basic accounting rules for cooperative societies? 

Cooperative societies typically maintain double-entry bookkeeping systems. Therefore, all transactions must be recorded in a day book for cooperative societies accounting to be transparent.

Q2. How should a cooperative society manage its financial records on an annual basis? 

The cooperative housing societies typically hold budget meetings, complete monthly trial balances, submit the audit report on time and keep records for 10 years. The audit must take place within 60 days of the year-end of the cooperative societies’ financial march year end.

Q3. What are the best practices for accounting for an effective cooperative housing society?  

Record keeping accurately, record keeping separated by duties, internal controls are maintained and reviewed, tax issues are resolved, internal controls are working and maintaining up to date cooperative housing society specific accounting software are potential best practices to name a few.

Q4. How can cooperative societies reduce cash transactions? 

Reduce cash transactions by utilizing digital payment solutions, having cash budgets, having bank accounts, and having effective cash planning systems. 

Q5. What financial statements are needed for a cooperative society? 

The main one is the Balance Sheet or Financial Statement, which reports on the financial position of the society on a year-end basis and summarizes society’s accounting results.