Basic Accounting for Credit and Savings Schemes

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    Basic Accountingfor Credit and

    Nicola Elliott

    O xfam (UK and Ire land)

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    Published by Oxfam (UK and Ireland) Oxfam (UK and Ireland) 1996ISBN 085598 342 6A catologue record for th is book is available from the British Library.All rights reserved. Reproduction, copy, transmission, or translation of any partof this publication may be made only under the following conditions: with the prior written permission of the publisher; or with a licence from the Copyright L icensing Agency Ltd., 90 Tottenham CourtRoad, London W1P 9HE, UK; or for quo tation in a review of the work; or und er the terms set out below.This publication is copyright, but m ay be reprodu ced by any method without feefor teaching purposes, but not for resale. Formal permission is required for allsuch uses, but no rmally will be granted imm ediately. For copying in any othercircumstances, or for re-use in other publications, or for translat ion oradap tation, prior written permission mu st be obtained from the publisher, and afee may be payable.Cover photos: left: Linda Milller; top right: Jeremy Hartley; bottom right: ClareHanton-KhanPublished by Oxfam (UK and Ireland), 274 Banbury Road, Oxford OX2 7DZ, UK;tel. (0)1865 313922; e-mail [email protected](registered as a charity, no. 202918)Available from the following agents:for Canada and the USA: Humanities Press International, 165 First Avenue,Atlantic Highlands, N ew Jersey NJ 07716-1289, USA; tel. (908) 8721441; fax (908)872 0717for southern Africa: David Philip Pu blishers, PO Box 23408, Clarem ont, C apeTown 7735, South Africa; tel. (021) 64 4136; fax (021) 64 3358.Available in Ireland from Oxfam in Ireland, 19 Clanwilliam Terrace, Dublin 2(tel. 01 661 8544).Designed by Oxfam D esign Department OX211 /PK/96Printed by Oxfam Print UnitOxfam (UK and Ireland) is a member of Oxfam International.

    This book converted to digital file in 2010

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    CO N T E N T SAcknowledgements viiIntroduction 11 Getting started 3Roles and responsibilities 3The budg et 3Procedures 42 Recording the transactions 5The cash book 5Information recorded in the cash book 5Cash handling 8

    The bank book 8Invoices and vouch ers 93 Balancing the book s 13The cash count 13The bank statemen t 14The bank reconciliation 154 Sorting the data 18The receipts and pay ments report 19The bud get and actual report 225 The balance sheet 24Assets and liabilities 24Types of expenditu re 336 Administration of loans 35Loan applications 35Loan agreem ents 35Interest 36Loan registers 37Sum mary of loans outstanding 38

    Bad deb ts 387 Administration of savings 42Deposits 42Withdrawals 43

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    i v Basic Accounting for Credit and Savings Schemes

    Mo nthly savings sum m ary 43Interest 448 Sustainability 49Com bined credit and savings schemes 49Revolving loan funds 49Inflation 50Sustainability and accessibility 519 Stock 53Security 53Record keeping 53Stock cards 54Stock received 54Stock issued 55Items issued on credit 57Checking the stock 62The value of the stock 6310 Checking the accounts 65W hat the aud itor will be looking for 6511 Ten basic principles 67Glossary 68

    Further reading 73Appendix 1 A worked example 74Appendix 2 Blank forms 82Index 90List of text figuresFigure 1: Exam ple of the bu dg et of a credit and savings scheme 4Figure 2: Layout of a cash book 6Figure 3: Exam ple of a completed cash book 7Figure 4: Alternative layout for a cash book 7Figure 5: Exam ple of a completed ban k book 9Figure 6: Alternative layout for a bank book 10Figure 7: Exam ple of a paym ent voucher 11Figure 8: Example of a receipt vouch er 11Figure 9: A cash count record sheet 13Figure 10: Example of a bank statement 14Figure 11 : Bank book: to show reconciliation with bank statement 15Figure 12: Bank statement: to show reconciliation with bank book 15Figure 13: Exam ple of a bank reconciliation 16Figure 14: An alysed cash book: receipts 18Figure 15: Analysed cash book: payments 19Figure 16: Receipts and pay ments sum mary from cash book 20Figure 17: Analysed bank book: receipts 20

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    Contents vFigure 18: Analysed bank book: payments 21Figure 19: Receipts and payments sum ma ry from bank book 21Figure 20: Exam ple of a receipts and paym ents report 22Figure 21: Example of a bud get and actual report 22Figure 22: Calculation of net assets 25Figure 23: Balance sheet at 1 January 26Figure 24: Extract from balance sheet at 31 January 26Figure 25: Balance sheet at 31 January 27Figure 26: Credit and savings scheme bu dg et for February 28Figure 27: Cash book: receipts (February) 29Figure 28: Cash book: payments (February) 30Figure 29: Bank book: receipts (February) 30Figure 30: Bank book: payments (February) 30Figure 31: Receipts and pay ments repo rt (February) 31Figure 32: Budget and actual repo rt (February) 31Figure 33: Balance shee t (28 February) 32Figure 34: Balance Sheet (28 February) show ing capital expend iture 33Figure 35: Example of a project budget 35Figure 36: Example of a loan agreem ent 36Figure 37: Exam ple of a loan register 37Figure 38: Sum mary of loans outstanding 38Figure 39: Exam ple of loan register, sho wing write-off of bad debt 39Figure 40: Sum mary of loans outstanding , snow ing write-off of baddebt 39Figure 41: Balance sheet, showing write-off of bad debt 40Figure 42: Example of a savings card 42Figure 43: Exam ple of a receipt vouch er 42Figure 44: Example of a paym ent voucher 43Figure 45: Savings cards for the case study 44Figure 46: M onthly savings sum m ary 43Figure 47: Savings cards show ing interest received 46Figure 48: Balance sheet, show ing interest paid to savers 47Figure 49: Balance sheet, show ing g rant received for reven ueexpenses 51Figure 50: Layout of a stock card 54Figure 51: Stock card, show ing purc hase of stock 55Figure 52: Layout of a stock issue book 55Figure 53: Stock card, sho wing issue of stock 56Figure 54: Loan register for stock issued on credit 57Figure 55: Animal traction project cash book: receipts 58Figure 56: Animal traction project cash book: payments 58Figure 57: Animal traction project: stock issue book 59Figure 58: Animal traction project: loan register 59

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    v i Basic Accounting for Credit and Savings Schemes

    Figure 59: Animal traction project: combined stock issue book and loanregister 59Figure 60: Animal traction project: stock cards for bean seeds andploughs 60Figure 61 : Animal traction project: balance sheet 61Figure 62: Exam ple of stocktake record 62Figure 63: Stock card , sho wing stocktake write-off 62Figure 64: Animal traction project: stock card , show ing write-off ofdam aged stock 63Figure 65: Anim al traction project: amen ded balance sheet, show ingstock write-offs 64

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    vu

    ACKNOWLEDGEMENTSThe material in this guide is drawn from the ideas presented at aw ork sh op he ld in M w anz a , Tan zan ia in Decem ber 1993 . Theparticipants were members of Youth Economic Groups and Women'sEconomic Groups supported by Oxfam. The workshop was held todiscuss the financial m anagement of revolving loan funds.I w ould like to thank John Camm ack, Hu gh Belshaw, Ros Avery,Susan Ralphs, Ceri Sullivan, and Akm Golam M orshed, w ho read themanu script and m ade helpful suggestions.Nicola ElliottMay 1996

    The view of a well established Estate in a man's bookes procurethcontentment unto the possessor. Richard Dafforne (1635)

    The Merchants Mirrour:or D irections for the Perfect Ordering and Keeping of his Accounts

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    viii Basic Accounting for Credit and Savings Schemes

    OMAFES urban credit project, Mali. Maimouna Coulibaly (left) and Fani (right)repaying the weekly instalment of their loan to the collector or 'animatrice'for the loan scheme. Photo: James Hawkins/Oxfam

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    INTRODUCTIONIn many developing countries poor people have combined together toorganise saving schemes in order to increase their financial security.Saving schemes may be used as a source of credit for the participants,w ho take turns to receive loans.Many donor agencies fund credit schemes in developing countries.Donors are attracted by the idea that their funds w ill be used many timesover and benefit many different borrow ers.There are a range of views on the usefulness and app ropr iatene ss ofsavings and credit schemes (see Furthe r Reading). Much dep ends on theaim of the scheme. If poverty reduction is the goal, the scheme will needto ensu re it resp ond s to the savings and c redit needs of very poor people.These may be mo re to do w ith flexible sav ings accoun ts and provision ofloans to meet abnorm al exp enditure (such as paym ent for health care orother family expenses) than for credit to set up small income-generatingventures.

    Much also depends on the context, including existing formal andinformal savings and credit institutions such as ban ks, rotating savingsand credit associations (ROSCAs), and private money-lenders. It isimpor tan t for in tervent ion agencies to unders tand how exis t inginstitutions are (or are not) useful to poor people and to design anyscheme accordingly. The macroeconomic context i s important ininfluencing the financial sustainability of schemes (see Chapter 8:Sustainability). However, institutional sustainability depends on howwell staff and pe ople using the scheme work together tow ards comm ongoals.

    Efficient administration and accurate accounting records are vital forany scheme to be successful. A savings and credit scheme needs accurateaccounts in order to: record the history of the financial activities of the scheme; pro vid e information for the leade rs of the project to help them toma nage its activities; ma intain confidence in the scheme: don ors and savers need to knowthat their funds are in safe hand s; bor row ers need to know that theirloan is being dealt w ith fairly.

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    2 Basic Accounting for Credit and Savings Schemes

    Accounting is the process of recording, reconciling, sorting, andsum marising indiv idual transactions in order to presen t a picture of thefinancial health of an enterprise. The pu rpo se of this guide is to exp lainthe principles and tasks required to carry out all these activities for asavings and credit scheme. In many countries there will be a governmentrequirement for o rganisations to maintain prop er accounting records.

    It is hop ed that the gu ide will be useful to a num ber of audiences: lead ers and finance officers of cred it and savings schem es, as the basisfor a procedures m anual; project funders, to provide a benchm ark for good practice; facilitators of financial training w orkshops, as a training resource; the general reader, as an introduction to basic accoun ting.

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    CHAPTER 1 : GETTI NG STARTED

    Roles and responsibilitiesIt is the responsibility of the management committee of the project toensure that its finances are well managed. The committee should electone committee member to oversee the financial management of theproject. This person is usually known as the treasurer. The treasurershould be someone with knowledge and experience of f inancia lmanagement.If the project is a large or complicated one with many transactionsthere may be too much w ork for the treasurer who is often a volunteer. Itis likely that the project will need to appoint a bookkeeper to maintainthe accounting records. In som e cases it may also be necessary to em ploya cashier to handle the cash coming in and going out. In smallerorganisations the job of bookkeeper and cashier will be don e by the sameperson.

    It is good practice to have more than one person working on theaccounts of the project, to protect against errors, fraud or suspicion offraud. Accountants call this division of duties. Division of dutiesprotects against fraud because the financial staff would have to acttogether in orde r to steal from the project.The budgetBefore any expenditure takes place the management committee shoulddraw u p and approve a budget for the project. A budge t shou ld always bedraw n u p for a fixed period of time, for exam ple, one mo nth or one year.Firstly, the committee will need to calculate the income likely to bereceived by the scheme. They will need to estimate the level of sav ingsthat they think will be deposited, and include any grants which theyexpect to receive from do nors.Secondly, they will need to decide wha t has to be spent in order to runthe project, for example, on prem ises, staff, equipment, and transport;and how much all these expenses are likely to be for the period of thebudget.

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    4 Basic Accounting for Credit and Savings Schemes

    Using this information the committee can then work out the fundsthat they w ill have available to mak e loans. For example, the budg et fora credit and savings scheme might be draw n u p as follows:

    Credit and savings scheme budge t: January 19XXIncomeGrant from donor 200,000Savings dep osited 150,000Total income 350,000ExpenditureAdministration 10,000Available for loans 340,000Figure 1 : Examp le of th e budget of a credit and savings schem e

    ProceduresThe management com mittee is responsible for setting out a frameworkof financial pro cedures design ed to control the financial activities of theproject, and for ensuring that the finance officers and other staff areaware of their responsibilities. The procedures explained in this guidecould be used as a starting point. How ever, the managem ent committeewill need to decide wh o is responsible for each task.In particular, the committee will need to decide the procedure forauthorising payments. It may decide that all payments need to beauthorised in advance by a comm ittee m ember, in which case the cashierwould need to obtain the signature of a committee member on eachpayment voucher (see figure 7) before making the payment. All loansm ade by the credit scheme shou ld be authorised by the committee (seeChapter 6). However, the committee could decide that the cashier maymake routine payments up to a certain amount without referring to acommittee m ember.

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    CHAPTER 2:RECORDING THE TRANSACTIONS

    The cash bookThe basic accounting record used to record the cash transactions of theorganisation as they hap pen is know n as the cash book.Whenever cash leaves the organisation the cashier records thetransaction in the cash book as a paym ent. Similarly, wh eneve r cash isreceived by the organisation the cashier records it in the cash book asincome.The cashier should record the transactions in the cash book as soon asthey take place. This helps to ensure that the transactions are recordedaccurately, and that they are all included. Bookkeeping is much easier ifit is kept u p to date. If everything is written dow n p rom ptly, the book-keeper does not have to worry that he or she might forget to entersomething.If the cash book is completed accurately it serves as a diary of the cashtransactions of the organisation.Information recorded in the cash bookThe information wh ich should be recorded in the financial record s of thescheme depends on the facts which people involved in the scheme arelikely to need to know in the future.For each paym ent, people will need answ ers to the questions: When? Why? Who? What?

    Therefore, for each paym ent the bookkeeper sho uld record: The date the paym ent was m ade. The nam e of the person or organisation wh o received the payment. A description of the purpo se of the paym ent (for example, the goodsor services purchased ). The amo unt paid out.

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    6 Basic Accounting for Credit and Savings Schemes

    In a similar way, for every sum of money received by the organisationthe bookkeeper shou ld record: The date the income was received. The nam e of the person or organisation payin g in the income. The reason the income was received. The am oun t received.

    The cash book is organised into columns to show this informationclearly:Date Details1 Voucher

    number2Receipts Payments Balance

    NOTES:1 The name of the person receiving the payment and a description of the purposeof the payment.2 See the section on Invoices and vouchers later in this chapter.Figure 2: Layout of a cash bookThere is a column for receipts and a column for pay m ents. The balancecolumn is used to record the cash remaining with the organisation aftereach transaction. The balance is worked out by calculating the totalincome and deducting the total paymen ts.

    Balance = Total receipts - Total payments

    Figure 3 gives an example of a completed cash book. The cash held by theorganisation on 3 January is 129,000. This is made up of the 130,000w ithdra w n from the bank on 2 January less the purch ase of stationery for1,000 on 3 January.

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    Recording the transactions 7

    Date DetailsC r e d i t S c h e m e C a s h B o o k

    Voucher Receipts Payments

    1,000

    500

    30,00050,00040,000

    Balance130,000129,000

    128,500178,500148,500

    98,50058,500

    2 Jan3 Jan4 Jan

    10 Jan15 Jan25 Jan28 Jan

    Withdrawn from bankPurchase stationeryRefreshments forcommittee meetingSaver 3 de positLoan to Group ALoan to Group BLoan to Group C

    R l1

    2R2345

    130,000

    50,000

    NOTES:1 There is a separate voucher number sequence for receipts (R l , R2...) and for payments(1,2...).2 Figures 1 - 4 8 form a case study i l lustrating the principles explained in Chapters 2 - 8 .Figure 3: Example of a completed cash book

    The balance column show s the up-to-d ate figure of cash available tothe organisation.An other w ay of laying out a cash book is to show receipts on one p ageand payments on the opposite page , as show n in figure 4:

    ReceiptsDateJan210

    Total

    Description

    Withdrawnfrom bank

    Credit Scheme Cash BookVoucher Amount

    Rl 130,000Saver 3 deposit R2 50 ,00 0

    180,000

    PaymentsDate Description VoucherJan3 Purchasestationery4 Refreshments for

    committee me eting15 Loan to Group A25 Loan to Group B28 Loan to Group C3 1 Closing balanceTotal

    1

    2345

    Amount

    1,000

    50030,00050,00040,00058,500

    180,000Figure 4: Alternative layout for a cash book

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    8 Basic Accounting for Credit and Savings SchemesIn this system, the balance is not w orked out after every transaction. Itcan be calculated at any time by dedu cting total paym ents from totalreceipts. For example, on 31 January the total receipts in the month were180,000. Total pay ments were 121,500. Therefore, the balance was 58,500.At the end of the month the cashier should calculate the balanceremaining (the closing balance) and enter it as if it were the last paym entof the month. When this is done, the two sides of the cash book ad d u p tothe same amo unt, as show n in figure 4.The cash balance remaining at the end of the month (the closingbalance) becomes the opening balance for the start of the followingm onth. The opening balance is entered as if it were the first receipt in thecash book at the start of the month. (See figure 27.)The cashier should coun t the actual cash in the cash box and ensurethat the amount is the same as the closing balance shown in the cashbook. (See Chap ter 3: Balancing the Books: The Cash Count.)Cash handlingThe project should purchase a safe in which to keep the cash andimpo rtant d ocum ents. The cash box, cheque book, loan agreements, andunused receipt vouchers should always be stored in the locked safe.The cashier should keep the cash belonging to the project in a lockedcash box which shou ld be kept in the locked safe when not in use. On lythe cashier should have access to the cash box. The same person shouldbe responsible for writing u p the cash book.A memb er of the managem ent com mittee should hold the spare keyto the cash box. The key shou ld be kept in a sealed envelope. The cashierand the comm ittee mem ber should both sign over the seal, and date theenvelope.

    This procedure ensures that the management committee can haveaccess to the cash in an emergency bu t at any time the comm ittee m emberholding the spare key can prov e that she or he has not opened the cash box.The bank bookIn most situations, it is advisable for security reasons for organisations,how ever sm all, to have an account at a bank . Many don or organisationswill insist on bank accounts for g rou ps they sup port. The transactions ofan organisation w ith its ban k are recorded in the bank book.The bank book is exactly the same as the cash book except that itrecords transactions through the bank instead of transactions in cash.(See figure 5.) Sometimes both the bank book and the cash book arereferred to as 'the cash book(s)'.

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    Recording the transactions 9

    DateJan1222515162831

    Description

    Grant from donorSaver 1 dep ositSaver 2 depo sitCash withdrawnLoan to Group DVehicle hire forfield visitPayment ofoffice rentLoan to Group ESaver 4 dep osit

    Credit Schem e B ank BookChequeno.

    000051000052000053000054000055

    Voucher

    B R lBR2BR312345BR4

    Receipts

    200,00025,00045,000

    13,000

    Payments

    130,00050,000

    1,3005,000

    45,000

    Balance

    200,000225,000270,000140,000

    90,00088,70083,70038,70051,700

    Figure 5: Exam ple of a com pleted bank book

    As for a cash book, the alternative presentation, with receipts on onepage and paym ents on the opposite page, may be used for the bank book,as show n in figure 6 overleaf.Payments through the bank a re usua l ly made by cheque . Thebookkeeper should record the cheque number in the bank book, asshow n in figures 5 and 6.The management committee will need to appoint two or more of itsmembers to sign the cheques. This could be the treasurer and anothercomm ittee memb er. The comm ittee will need to decide and to inform thebank whether each signatory can sign alone or whether two signaturesare required on each cheque. They may decide that cheques below acertain limit need only one signature and cheques over that limit needtwo signatures.

    The bookkeeper shou ld keep the un use d cheques locked in the safe.Invoices and vouchersFor mo st transactions it is likely that there w ill be m ore informationwhich it wo uld be useful to record than the re is room to write in the cashbook or bank book.For example, for paym ents to supp liers it will be useful to have a recordof the exact quantities purchased. In many cases suppliers w ill provide an

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    Recording the transactions 1 1invoice, wh ich sets out w hat is being supplied and the cost of each item.The invoices should be num bered and filed in numerical order, so that theyare available to refer to if there is a query about any item in the cash book.

    Invoices are an important part of the accounting records because theyprov ide evidence to sup port the information entered in the cash book. Ifan invoice is not available, or not appro priate , for a particular paym ent,a payment voucher can be used. Like an invoice, a payment voucherrecords who has been paid, the amount paid and the purpose of thepayment. There should also be a space for the signature of the personauthorising the payment and the person receiving the money.

    Payment voucherCredit scheme Voucher number 000056Paid to Saver 4 Amount 3,000Description Repaid by chequeAuthorised by Cashier Received by Saver 4 Date 8 February 19XX

    Figure 7: Example of a payment voucher

    W hen a cheque payment is required, the bookkeeper shou ld preparethe cheque and present it together w ith the paym ent voucher or invoiceto the relevant committee member(s) for signing. (This is an example ofthe divis ion of duti es principle referred to in Chap ter 1.)Whenever money is received by the organisation the cashier shouldissue a receipt vouch er. The cashier should retain copies of the receiptvouchers and file them in numerical o rder.

    Receipt voucherCredit scheme Voucher number R7Received from Saver 3 Amount 500DescriptionReceived by

    DepositCashier Date 25 February 19XX

    Figure 8: Example of a receipt voucher

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    1 2 Basic Accounting for Credit and Savings SchemesThe cash book should have a column in which to enter vouchernumbers. There should be a separate number series for receipts andpaym ents. For example, in figure 3, the pay ment voucher sequence startswith T and the receipt voucher sequence starts with H I '.Receipt vouchers are particularly imp ortan t for a credit and savingsscheme: when retained by participants they provide evidence of loanrepaym ents made and savings deposited.The project shou ld p urchase books of receipt vouche rs which are pre-numbered. It is then easy to check that all of them are accounted forprop erly in the cash book. If pre-numbered books are not available, thetreasurer should hand -write num bers on the receipts in the receipt book

    before issuing them to the bookkeeper. Unused receipt vouchers shouldbe locked aw ay, to ensure that on ly genuine receipts are issued.A summ ary of this chapter1 The basic accounting record of any organ isation or project is the cashbook. If the project has a bank account it will also need a bank book.2 The bookkeeper should always keep the cash and bank books up todate. She or he should enter transactions in the cash or bank book as

    soon as mo ney is received or a paym ent is made .3 Only one person should hav e access to the cash box.4 The bookkeeper should make sure that there is an invoice or paymentvoucher for every payment ma de.5 The boo kkee per shou ld issue a receipt voucher for all incomereceived.

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    13

    CHAPTER 3: BALANCING THE BOOKS

    The cash countChap ter 2 explained that, if the cash book is written u p accurately, thebalance column sho ws the cash held by the organisation at any point intime.In order to ensure that the accounting records reflect the truesituation, there should be a regular check that the am ount of cash in theorgan isation's cash box or safe is actually the same as the am ount shownin the cash book. The cashier should count the cash and com pare the totalwith the cash book balance.It is useful to record the cash count so tha t if a difference arises in thefuture there is a record of the last time the cash book and the cash boxagreed. (See figure 9.)

    Cash count atCash countedNotes:1000 x 50500 x 161 0 0 x 5Coins:Total cashCash bookDifference

    counted on 3 1 Januarybalance on 3 1 January(if any):

    Counted by: (cashier)Agreed by: (treasurer)

    3 1 January 19XX

    50,0008,000500

    19XX: 58,50019XX: ' 58 .500

    NIL

    Date: 3 1 January 19XXDate: 3 1 January 19XX

    Figure 9: A cash count record sh eet

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    1 4 Basic Accounting for Credit and Savings Schemes

    The treasurer should review the cash count and initial the cash coun tsheet . A cash count should be carried out and recorded at least once each month(on the last day of the month) and w henever responsibility for the cash box ishanded over to another person.

    The bank statementThe bank will issue a monthly statement of its transactions on behalf ofthe project. The statemen t w ill probably look similar to the bank book,with separate columns for the date of the transaction, the type oftransac tion, and the amo un ts. (See figure 10.)

    2 Jan2 Jan2 Jan

    18 Jan18 Jan19 Jan3 1 Jan

    Bank Statem ent: JanuaryWithdrawals

    DepositDepositCheque 00 00 51Cheque 000054Cheque 000052Cheque 000053Charges

    130,0005,000

    50,0001,3001,000

    19XXDeposits

    70,000200,000

    Balance70,000

    270,000140,000135,000

    85,00083,70082,700

    NOTE: The deposits on January 2 from Saver 1 (25,000) and Saver 2 (45,000) areshown as one amount of 70,000 on the bank statement; the example assumesthat they were paid into the bank at the same time.Figure 1 0: An example of a bank statement

    The bank statement is the ban k's record of the project's transactionsthrough the bank. Therefore, the transactions shown should matchexactly w ith those shown in the bank book. The bookkeeper shouldinvestigate anything which does not match exactly in case there is anerror in the bank book or at the bank .There may , how ever, be differences between the bank statemen t an dthe bank book due to differences in timing. When the project issues acheque to a supplier or to a participant in the credit scheme thebookkeeper should enter the details of the cheque in the bank bookimm ediately. Even if the person receiving the cheque deposits it at theirbank on the same day , it will take a few d ays for the cheque to work itsway through the banking system and to appear on the project ' sstatement. Cheques issued towa rds the end of the m onth m ay not appe ar

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    Balancing the books 1 5on the bank statement for that month: but they should appear on thefollowing month's statement.The bank reconciliationIn order to check that the bank statement agrees with the bank book thebookkeeper should prepare a bank reconciliation. A ban k reconciliationis an explanation of the difference, if any, between the balance shown inthe bank book an d the balance show n on the bank statement.The bookkeeper should go through the bank statement item by itemand find the matching item in the bank book. She or he shou ld m ark thematching items in the bank book and on the statement with a tick, asshow n in figures 11 and 12.

    Date DescriptionCredit Scheme Bank Book

    Cheque no. Voucher Receipts Payments BalanceJan1222515162831

    Grant from donorSaver 1 de positSaver 2 de positCash withdrawnLoan to Group DVehicle hire forfield visitPayment ofoffice rentLoan to Group ESaver 4 deposit

    000051000052000053000054000055

    BR1BR2BR312345BR4

    200,000 /25,000 /45,000 /

    13,000

    130,000 /50,000 /

    1,300 /5,000 /

    45,000

    200,000225,000270,000140,000

    90,00088,70083,70038,70051,700

    Figure 1 1 : Bank book: to show reconciliation with bank statement

    2 Jan2 Jan2 Jan

    18 Jan18 Jan19 Jan31 Jan

    BankDepositDepositCheque 000 05 1Cheque 000054Cheque 000052Cheque 000053Charges

    Statem ent: January 19XXWithdrawals

    130,000 /5,000 /50,000 /1,300 /1,000

    Deposits70,000 S200,000 /Balance70,000270,000140,000135,00085,00083,70082,700

    Figure 12: Bank statement: to show reconciliation with bank book

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    16 Basic Accounting for Credit and Savings Schemes

    W hen this exercise is complete there may be some items no t ticked.When these are listed, they should explain any difference between thebank book balance and the statement balance.In our example, there is an unticked item on the bank statement (thecharges of 1,000) and two unticked items in the bank book (cheque no.000054 for 45,000 and the deposit of 13,000 on 31 January). W e can listthese as follows:

    Bank reconciliation at 3 1 January 19XX

    Balance on bank statement 82 ,70 0Less:Payment in bank book not on sta tementCheque 000 05 5

    Add:Income in bank book not on statementDeposit on 3 1 JanuaryPayments on statement not yet in bank bookCharges

    Balance shown in bank book

    (45.000)37,700

    13,0001,000

    51,700Prepared by: (bookkeeper) Date: 3 1 January 19XXAgreed by: (treasurer) Date: 3 1 January 19XXNOTE: It is a convention in accounting to show payments in brackets, if bothreceipts and payments appear in the same column, in order to distinguishbetween them.Figure 1 3: Example of a bank reconciliationThe bank reconciliation in this example shows that the differencebetween the balance in the bank book at 31 January (51,700) and thebalance on the bank statem ent (82,700) is du e to timing differences: Cheque num ber 000055 for 45,000 was issued on 28 January as a loan

    to Group E but had not appeared on the bank statement by 31 January.It shou ld app ear on the statemen t for February. If it does not appea r inFebruary the project should contact Group E to find out why theyhave not presen ted the cheque at their bank.

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    Bahncing the books Yl A charge of 1,000 has been made by the bank for adm inistering theaccount. This does not yet appear in the bank book because the projectdid not know how much the charge would be until they received the

    statement. The charge should be entered in the bank book forFebruary. The 13,000 dep osited on 31 January h as not yet been recorded by thebank in the project's account. The bookkeeper should check that itappears on the February statement.Once the cash count has been checked against the cash book and the

    bank statement has been reconciled w ith the bank book,w e can say thatthe accounts for the mo nth have been balanced.A summary of this chapter1 The bookkeeper should balance the accounts'each mo nth by coun tingthe cash and reconciling the bank book balance to the bank statement.2 The treasurer sho uld review and initial the cash count and the bankreconciliation.3 A cash count should be carried out wh enever responsibility for the

    cash box is han ded over to anothe r person.

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    18

    CH APT ER 4: SO RT ING THE DATAAccounts are not an end in themselves. They are designed to provideinformation to those who have an interest in the project: the donors,savers, and borrow ers.

    The columns of figures in the cash and bank books provide a day byday historical record of the financial activities of the project, rather th an asum mary of its financial position. The cash books p rov ide the data fromwhich the financial position can be. calculated. The bookkeeper needs to sor tand summarise that data in order to provide useful information for themanagers of the project. Management information is the term used byaccoun tants to describe financial summaries prep ared for man agers .Initially the transactions are sorted into payments and receipts. Inorde r to provide m ore information, the items can be further sorted intocategories. These categories should match the categories in the bu dge t.In a credit and savings schem e the main categories of income are likelyto be: grants received from dono rs loan interest loan repaym ents savings depo sited.

    In order to sort the income into these categories the bookkeeper need sto include a column in the cash book for each category. There should alsobe an 'other' column to record items which do not fall into any of thebudgeted categories. Accountants call this type of cash book an analysedcash book because it sorts or analyses the transactions into the selectedcategories. Figure 14 gives an exam ple.

    Credit scheme cash bookR e c e i p t sDate Description

    2 Jan10 Jan

    Total

    Withdrawnfrom bankSaver 3deposi t

    Voucher

    R lR2

    A m o u n t

    130,00050,000

    180,000

    Grants Loansrepaid

    Loaninterest

    Savings

    50,00050,000

    Other

    130,000

    130,000

    Figure 14 : Analysed cash book: receipts

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    Sorting the data 19

    In an analysed cash book each transaction is ente red twice: once in theam ount column an d again in the appro priate category column.For exam ple, in figure 14, the w ithdraw al of 130,000 from the bank on2 January appears in the 'amount ' column and in the column for thecategory 'other'; the deposit from Saver 3 on 10 January appe ars in the'amount' column and in the column for the category 'saving s'.At the end of the mon th the column totals will show the total incomereceived in each category durin g the m onth. In order to ensure that theanalysed cash book 'balances', the bookkeeper should check that theanalysis column totals add up to the total of the 'amount' column. Forexam ple, in figure 14, the total of the 'savings' column (50,000) plus thetotal of the 'other' column (130,000) add up to the total of the 'amount'column (180,000).The bud geted categories of paym ents for a credit and saving schemeare likely to be: loans issued adm inistration expenses savings paid back to participants.

    Therefore, the bookkeeper could set up the paym ents side of the cashbook to look like figure 15:

    Credit scheme cash bookPaymentsDate Description Voucher Amount

    3 Jan4 Jan

    15 Jan25 Jan28 Jan31 Jan

    Total

    Purchase s tationeryRefreshmentsLoan to group ALoan to group BLoan to group CClosing balance

    12345

    130504058

    180

    000500000000000500000

    Loansissued

    30,00050,00040,000

    120,000

    Savingsrepaid Administration Otherexpenses1,000

    500

    58,5001,500 58,500

    Figure 15: Analysed cash book: payments

    The receipts and paym ents reportUsing the column totals from the analysed cash book, the bookkeepercan summarise the cash transactions of the project for the month ofJanuary as follows:

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    2 0 Basic Accounting for Credit and Savings Schemes

    Credi t scheme cash bookReceipts and paym ents sum ma ry January 19XX

    Opening balanceReceipts

    Cash from bankSavings deposited

    PaymentsAdministrationLoans issued

    NIL

    130,00050.000

    180,000

    (1,500)(120.000)

    Closing balance 58.500

    Rgure 1 6: Receipts and payments summary from cash bookThe bookkeeper should sort the receipts and payments in the bank

    book in the same way as for the cash book. This is shown in figures 17 and18.

    Credit scheme bank bookReceiptsDate

    U a n2 Jan2 Jan

    31 JanTotal

    Description

    Grant from donorSaver 1 depositSaver 2 depositSaver 4 deposit

    Voucher Amount

    BR1BR2BR3BR4

    200,00025,00045,00013,000

    283,000

    Grants

    200,000

    200,000

    Loansrepaid

    LoanInterest

    Savings Other

    25,00045,00013,00083,000

    Figure 17 : Analysed bank bo ok: receipts

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    Sorting the data 2 1

    Credit scheme bank bookPaymentsDate

    2 Jan5 Jan

    15 Jan16 Jan28 Jan3 1 JanTotal

    DescriptionCash withdrawnLoan to group DVehicle hireOffice rentLoan to group EClosing balance

    Cheque000051000052000053000054000055

    Voucher12345

    Amount130,000

    50,0001,3005,000

    45,00051,700

    283,000

    LoansIssued

    50,000

    45,00095,000

    Savingsrepaid

    Admin Otherexpenses

    1,3005,000

    6,300

    130,000

    51,700181,700

    Figure 1 8 : Analysed bank bo ok: paymen tsUsing the analysed bank book, the bookkeeper can summarise thebank transactions for the mo nth of January:

    Credit scheme bank bookReceipts and paym ents sum mary January 19XXOpening balanceReceipts

    Grant from donorSavings deposited

    PaymentsTo cashAdministrationLoans issued

    Closing balance

    NIL

    200,00083.000

    283,000

    (130,000)(6,300)

    (95.000)51.700

    Figure 19: Receipts and payments summary from bank book

    The bookkeeper can then combine these two summ aries to provide acomplete report of the project's transactions for the month. Accountantscall this a receipts and payments report.

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    2 2 Basic Accounting for Credit and Savings Schemes

    Receipts and Payments Report: January 19XXOpening balance NILReceiptsGrant from donor 20 0,0 00Savings deposited (50,000 + 83,000) 133.000333,000PaymentsAdministration (1,500 + 6,300) (7,800)Loans issued (12 0,000 + 95,000) (215.000)Closing balance (5 8 ,5 0 0+ 51,70 0) (110.200)NOTE: The withdrawal of cash (130,000 shown as a receipt in the cash book andas a payment in the bank book) does not appear on this combined statementbecause it is not a transaction with the outside world: it is simply a transfer of theproject's money from the bank into the cash safe.Figure 20 : Example of a receipts and payments report

    The example above in figure 20 is the receipts and payments report forthe month of January. A receipts and payments report can be preparedfor any length of time. Accountants call the length of time covered by areport the accounting period.

    The budget and actual reportThe bookkeeper can combine the receipts and payments report with thebudget to produce a budget and actual report:

    Budget

    IncomeGrant from donorSavings depositedExpenditureAdministrationLoans issued

    and Actual Report:Budget

    200,000150,000

    10,000340,000

    January 19XXActual

    200,000133,000

    7,800215,000

    Variance0

    17,000

    2,200125,000

    Figure 2 1 : Example of a budget and actual report

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    Sorting the data 2 3The variance column shows the difference between the budgetedamo unts of income and expen diture and the actual amoun ts.The committee should review the budget and actual report eachmonth in order to monitor the financial progress of the scheme. Forexam ple, in figure 21 the variance column sh ow s that savings depo sited,adm inistration expenses, and loans issued were all less than bud geted .

    A summary of this chapter1 In order to prov ide management information the bookkeeper needsto sort and summarise the individual transactions (the data) of theproject.2 The bookkeeper can sort the transactions as they happ en by enteringthem in the columns of an analysed cash book. There should be aco lumn head ing fo reach budge ted ca t egory o f i ncome andexpenditure.3 Using the information from the analysed cash books, the bookkeepercan prepare monthly summary reports known as the receipts andpayments report and the budget and actual report.4 The managem ent committee should review the monthly su mm ary

    repo rts in ord er to monitor the financial pro gress of the scheme.

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    24

    CHAPTER 5 : THE BALANCE SHEET

    Assets and liabilitiesThe receipts and paym ents report introduced in Chapter 4 tells the storyof an organisation's financial activities during a particular accountingperiod.It show s the cash and bank balances held at the start of the accountingperiod. It shows the income received and the paymen ts mad e during theperiod which resulted in the cash and bank balances remaining at theend of the period.However, apart from the am ount of money held in cash or at the bank,the receipts and paym ents report does not show the financial position atthe end of the accounting perio d. In order to m onitor the progress of thecredit scheme, the management committee need to keep track of theassets and liabilities of the project.The assets of an organ isation are the th ings that it owns. These includeequipment and stock. Monies due to be paid to the organisation alsocount as assets; loans issued and not yet repaid are therefore assets.Those who owe m oney to the organisation are know n as debtors.From the Receipts and Payments Report shown in figure 20, we canlist the assets of the credit schem e in the case stu dy at 31 January:

    Credit scheme: assets at 3 1 January 19XXCash held (from figure 16) 58 ,500Bank balance (from figure 19) 51 ,700Loans issued 21 5,0 00Total assets 32 5,2 00

    The liabilities of an organisation are the amo unts it m ust pay to otherorganisations or individuals. Therefore savings deposited with theproject are liabilities of the project. The organisations or individualswhich mu st be paid are known as creditors.

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    The balance sheet 2 5For exam ple, if you have money deposited at a bank, the bank is yourdebtor because the bank m ust pay your m oney to you when y ou requestit. However, if you have an overdraft at the bank, the bank is your

    creditor because you m ust pay m oney to the bank to clear the overdraft.From figure 20, we can list the liabilities of the credit scheme in thecase study at 31 January as follows:

    Credit scheme: liabilities at 3 1 January 19XXSavings deposited 13 3,0 00Total liabilities 13 3, 00 0We can combine the list of assets w ith the list of liabilities to calculate thenet assets at 31 January 19XX:

    Credit scheme: calculation

    AssetsCash heldBank balanceLoans issuedTotal assetsLiabilitiesSavings depositedTotal liabilitiesTotal assets less total liabilities= net assets

    of net assets at 3 1

    58,50051,700

    215.000

    133.000

    January 19XX

    325,200

    133.000192.200

    Figure 22 : Calculation of net assetsNet assets represen t the curren t value of the project: the money thatwould be left over if the project used what it owns to pay w hat it owes.

    CapitalThe original funding of a project or organisation is know n as the capital.In the case stud y the capital of the credit and savings scheme is the initialgrant of 200,000.

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    2 6 Basic Accounting or Credit and Savings SchemesThe balance sheetThe repor t wh ich summar i se s t he assets and l iabi l i t ies of anorganisa t ion is known as the balance sheet. This is drawn up bycomparing the net assets of the project with the capital. On 1 January19XX, the balance sheet of the scheme wo uld have been:

    Balance Sheet at 1 January 19XXAssets CapitalBank balance 20 0, 00 0 Grant received 20 0,0 00Net assets 20 0.0 00 20 0.0 00Figure 23 : Balance sheet a t 1 January

    At 31 January the net assets can be listed as follows:

    BalanceAssetsCash heldBank balanceLoans outstandingLiabilitiesSavings heldNet assets

    Sheet at

    58,50051,700

    215,000

    133,000192,200

    3 1 January 19XX (extract)CapitalGrant received 200,000

    Figure 24: Extract from balance sheet at 3 1 JanuaryThe difference between the net assets at the start and at the end of anaccounting period is the surplu s or deficit for tha t accounting period.In the case stu dy the net assets at 1 Jan uar y w ere 200,000. On 31January the net assets were 192,200. Therefore, the deficit for Januarywas 200,000 - 192,200 = 7,800. When this figure is inserted into thebalance sheet, the two sides add up to the same amo unt:

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    The balance sheet 2 7

    AssetsCash heldBank balanceLoans ou tstanding

    Total assets

    LiabilitiesSavings held

    Net assets

    Balance Sheet

    58,50051,700

    215.000

    325,200

    (133.000)

    192.200

    at 3 1 January 19XXRepresented byGrant receivedDeficit

    200,000(7,800)

    192.200Figure 25 : Balance sheet at 3 1 January

    Accountants call this report the balance sheet because the two colum nsadd up to the same figure. If the two sides do not balance, there is amistake which needs to be investigated and corrected.The left hand side of the balance sheet lists the assets and liabilities ofthe project in orde r to calculate the net assets position. This is the amoun tof money that w ould rem ain if the project used its assets to pay off all itscreditors.

    The right hand side explains how the project arrived at its current netassets position. In this example, the project received a gran t of 200,000. Ithas spent 7,800 on administration (see figure 20), leaving net assets of192,200.Extending the case studyIn order to illustrate the balance sheet concept m ore clearly we need tocontinue the case study . We take up the story again in Febru ary 19XX.The bud get has been draw n u p as follows:

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    28 Basic Accounting or Credit and Savings Schemes

    Credit and savings schemeIncomeBalance brought forward from JanuaryLoan repayments1Interest on loans2Savings deposited3Total income

    ExpenditureAdministrationSavings repaid3Loans issuedBalance carried forward

    budget February 19XX

    110,20017,917

    1,79210.000

    139,909

    2,0005,000

    70.00062.909

    NOTES:1 In the case study, loans are repayable in 12 monthly instalments starting onemonth after the loan is issued. In January 21 5,0 00 was issued in loans (seef igure 20 ), therefore, 215 ,00 0 -= 12 = 17,917 is due to be repaid in February.2 Interest is charged on loans at 10 per cent. The interest is payable in 12monthly instalments starting one month after the loan is issued. Therefore,interest payments due in February are 21 5,00 0 x 10% -r 12 = 1,792.3 The figures for savings depo sited and repaid are estima tes by the managem entcommittee of the likely level of savings which will be deposited with andwithdrawn from the schem e.Figure 26: Credit and savings scheme budget for February

    In February 19XX the following transactions take place:1 February Saver 1 deposits 2,000 in cash.2 February Saver 2 deposits 1,500 in cash.2 February Group B makes a loan repaym ent in cash of 4,583 of which

    416 is interest.5 February Group C makes a loan repayment by cheque of 3,667 ofwhich 334 is interest.

    7 February Saver 3 deposits 3,000 in cash.

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    The balance sheet 2 98 February 3,000 is paid back to Saver 4 using cheque n um ber 000056.10 February Group A makes a loan repayment in cash of 2,750 of which

    250 is interest.15 February Saver 5 deposits 2,000 in cash.16 February 500 is paid in cash for th e hire of a room for the comm ittee

    meeting.16 February Refreshments for committee meeting: 100 cash.17 February 20,000 is deposited a t the bank.17 February Loan issued to Gro up F: 30,000 using cheque 000057.25 February Saver 3 deposits 500 in cash.

    The cash and bank boo ks for F ebruary are show n in figures 27 to 30.(Readers might like to take the opportunity to practise the procedurescovered so far by wri t ing up the February cash and bank booksthemselves. Blank forms are included in Appendix 3 at the end of thebook.)

    Credit scheme cash bookReceiptsDate DescriptionFebruary1122

    710

    1525

    Total

    Opening balanceSaver 1 de positSaver 2 de positGroup B loanrepaymentSaver 3 d epositGroup A loanrepaymentSaver 5 depositSaver 3 deposit

    Voucher

    RlR2R3

    R4R5

    R6R7

    Amount

    58,5002,0001,5004,583

    3,0002,750

    2,000500

    74,833

    Grants Loansrepaid

    4,167

    2,500

    6,667

    LoanInterest

    416

    250

    666

    Savings Other

    58,5002,0001,500

    3,000

    2,000500

    9,000 58,500Figure 2 7 : Cash book: receipts (February)

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    30 Basic Accounting for Credit an d Savings Schemes

    Credit scheme cash bookPaymentsDateFebruary16161728Total

    Description

    Hire of roomRefreshmentsTo bankClosing balance

    Voucher

    123

    Amount

    500100

    20,00054,23374,833

    LoansIssued Savingsrepaid Adminexpenses

    500100

    600

    Other

    20,00054,23374,233

    Figure 2 8: Cash book: payments (February)Credit scheme bank bookReceipts

    D ate Description

    February1 Opening balance517Total

    Group C loanrepaymentFrom ca sh

    Voucher

    BR1BR2

    Amount

    51,7003,667

    20,00075,367

    Grants Loansrepaid

    3,333

    3,333

    Loaninterest

    334

    334

    Savings Other

    51,700

    20,00071,700

    NOTE: The loan repayme nt i s sp l i t be tween two o f t he ana lys is co lum ns . Th is i s because par tof the paym ent is to repay the loa n and pa r t of i t is the paym ent of in tere st on the l oan .Figure 2 9: Bank book: receipts (February)

    Credit scheme bank bookPaymentsDateFebruary181728Total

    Description

    Bank chargesTo saver 4Group F loanClosing balance

    Voucher

    0 0 0 0 5 6000057

    Amount

    1,0003,000

    30,00041,36775,367

    Loansissued

    30,000

    30,000

    Savingsrepaid

    3,000

    3,000

    Adminexpenses

    1,000

    1,000

    Other

    41,36741,367

    Figure 30: Bank book: payments (February)

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    Th e balance sheet 31From the analysed cash and bank books for February we can produce thereceipts and payments report and the budget and actual report:

    Receipts and Payments Report: February 19XXOpening balance (58,500 + 51,700) 110,200Receipts

    Loans repaid (3 ,333 + 6,667)Loan interest (334 + 666)Savings deposited

    PaymentsLoans issuedSavings repaidAdmin expenses (1 ,00 0 + 600)

    Closing balance (54,2 33 + 41,367)

    10,0001,0009.000

    130,200

    (30,000)(3,000)(1.600)

    95.600Note: A receipts and payment report is for a period of time (an accounting period)whereas a balance sheet shows the financial position at a chosen date- the lastday of the accounting period.Figure 3 1 : Receipts and payments report (February)

    Budget andIncomeBalance brought forwardLoan repaymentsInterest on loansSavings depositedExpenditureAdministrationSavings repaidLoans issuedBalance carried forward

    Actual Report: FebruaryBudget110,200

    17,9171,79210,000

    2,0005,00070.000

    62.909

    Actual110,200

    10,0001,0009,000

    1,6003,00030.000

    9JL600

    19XXVariance0

    7,9177921,000

    4002,00040.000

    (32.691)Figure 3 2: Budget and actual report (February)

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    , 32 Basic Accounting orCredit and Savings Schemes

    From the receipts and payments report in figure 31, we can go on toprepare the balance sheet as 28 February:

    Notes on the calculations:1 Loans outstanding:

    Balance

    AssetsCashBank balanceLoans outstanding

    Total AssetsLiabilitiesSavings heldNet AssetsRepresented by:

    Grant receivedAccumulated deficit

    Net assets

    Sheet at 28 February 19XXNotes

    1

    2

    3

    28 February54,23341,367

    235.000330,600

    (139.000)191.600

    200,000(8,400)

    191.600

    3 1 January158,50051,700

    215.000325,200

    (133.000)192.200

    200,000(7,800)

    192.200

    Opening loans outstand ingAdd: Loans issuedLess: Loans repaid (excluding interest)2 Savings held:Opening savings heldAdd: Savings depos itedLess: Savings repaid3 Accumulated deficit:Opening deficitAdd: Administration expensesLess: Interest received

    215,00030,000(10,000)

    235.000133,000

    9,000(3,000)

    139.0007,8001,600

    (1.008.400

    -215,000

    -215.000

    -133,000-133.000

    -7,800_7.800

    NOTE: 1 It is useful to show the previous balance sheet for comparison. The example showsa reduction in net asse ts between 3 1 January and 28 February from 1 92 ,2 00 to 191,600.The project has spe nt more on adm inistration than it has earned in interest.Figure 33: Balance sheet (28 February)

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    3 4 Basic Accounting for Credit and Savings Schemes

    A summary of this chapter1 In orde r to m on itor the financial hea lth of the project, the projectleade rs need to review regularly the assets and liabilities of the projectas show n on the balance sheet.2 The bookkeeper or treasurer should pre par e a balance sheet for eachcomm ittee meeting.3 The balance sheet is in two parts : the calculation of net assets and theexplanation of how the net assets were acqu ired.4 In preparing the balance sheet, a distinction is m ade between capitalexpenditure (expenditure on assets which will be used durin g several

    accounting periods) and revenue expenditure (expenditure on run-ning costs du ring a particular accoun ting period).

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    35

    CHAPTER 6:ADM INISTRATION OF LOANSLoan applicationsThe management committee of a credit scheme should consider eachloan application carefully. M oney should only be lent to people who arelikely to be able to repay.Each application shou ld include a budget and a repayment plan. Thebudget is a list of the items to be purchased with the loan, and shou ldinclude an estimate of the cost of each item. The repayment plan is aforecast of how the grou p will generate the money to repay their loan.

    Group A: Dressmaking projectBudget:Sewing machineTable and s toolThreads(Outfits to be made up using clien ts' own fabric.)Repayment plan:20 outfits per month at 3,000 each 60,000Monthly repayments from February 19XXAvailable for group membersFigure 35: Example of a project budgetLoa n agreementsA loan agreement shou ld be draw n u p for every loan advanced by thescheme. This is to ensure that the borrow er u nde rstand s w hat the loan isfor and how it is to be repaid . The loan agreement should set out: the am ount of the loan; the purpo se of the loan;

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    36 Basic Accounting for Credit and Savings Schemes the interest charge; the t iming of repayments ; any penalties fo r late repayme nt .

    An exa mple is sh ow n in figure 36.Credit scheme loan agreement

    Name of group: Group AThe credit scheme has agreed to lend you the sum of 30,000.Interest on this loan will be charged at the rate of 10% per annum .The credit scheme agrees that the total amount of the loan, plus interest of3000 will be repaid in 12 m onthly instalme nts of 2,750, starting on 15 February19XX .

    The money lent by the cred it scheme must be used only for the agreed purpose,namely, the purchase of a sewing machine, table, stool, and threads .

    Interest will be charged on late repayments a t the rate of 2% per mo nth.If any repayment is more than one m onth la te, the credit scheme reserves the

    right to confiscate the sewing machine until a new repayment p lan is agreed withthe group.Signed on behalf of the credit schem e:Name PositionSignature DateSigned on behalf of the group:Name PositionSignature DateFigure 36 : Example of a loan agreementW hen the loan is issued a represen tative of the grou p should sign the loanagreem ent and the paym ent vouch er (see figure 7).InterestBorrowers will normally be required to pay back to a credit scheme mo rethan they originally borrow ed: there will be an interest or administrationcharge add ed to the loan.The management comm ittee w ill need to set the level of interest to becharged (see Ch apter 8: Sustainability) an d to decide on the m ethod ofcalculating the loan repaym ents.

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    Adm inistration of loans 3 7The simplest method of calculating interest is the straight-linemethod. Here, the interest is spread equally over all the repaym ents. Forexample, a loan of 30,000 is to be repaid in 12 mo nthly instalments. There

    is an administration charge or interest of 10 per cent (3,000). Using thestraight-line m ethod, there will be 12 monthly rep ayments of 30,000 -f-12= 2,500, and 12 month ly instalmen ts of interest of 3,000 -f-12 = 250. If theloan were to be repaid over 24 months, the management committeemight still decide to charge interest of 10 per cent per year. In this case,the total interest on the loan would be 2 x 3,000 = 6,000. Using thestraight-line m ethod, there wou ld be 24 monthly repay men ts of 30,000 -f-24 = 1,250 and 24 monthly instalmen ts of interest of 6,000 = 24 = 250.Loan registersA loan register should be kept for each loan issued. This could simply be apage in an exercise book. The loan register prov ides an accessible record ofthe administration of each loan. It saves having to go back through all thetransactions in the cash and bank books every time there is a query.The loan register sho uld record: the am oun t of the loan; the interest or adm inistration charge; the repayment plan; the repay ments received.

    Loan registerName of group: Group A: Dressmaking projectAmount advanced: 30,000 Date of advance: 15 January 19XXInterest rate: 10%Purpose of loan: Purchase of a sewing machine, table, stool and threads.Repayment term s: 33 ,00 0 repayable in twelve equal monthly instalments starting 15 February 19XX.1

    Repayments received:Date Total received Voucher' Repayment Interest Balance Com ments

    of capital2 remainingFebruary 10 2,750 R5 2,500 250 27 .500 3 On time

    NOTES:1 The case study assumes that an administration charge or interest of 10 per cent is charged on each

    loan. The total of the advance plus interest is repayable in 1 2 equal m onthly instalme nts. The firstinstalment is due one month after the loan is advanced.2 The amount advanced as a loan is known as the cap ital.3 30,000-2,50 0 = 27,500

    Figure 3 7: Example of a loan register

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    3 8 Basic Accounting fo r Credit an d Savings Schemes

    Summary of loans outstandingThe bookkeeper should keep a loan register for each loan. Every time arepayment is received, the bookkeeper should enter it in the cash book orbank book and in the relevant loan register.From the individual loan registers the bookkeeper can prepare asum m ary of the loans ou tstand ing (see figure 38). This sum mary shouldbe prepared regularly, and presented to the man agem ent comm ittee fortheir attention.

    Group

    ABCDEF

    Summary o fLoansissued30,00050,00040,00050,00045,00030,000

    loans outstandingRepaymentsreceived2,5004,1673,333

    at 28 February 19XXBalanceremaining27,50045,83336,66750,00045,00030,000

    Comments

    On timeOn timeOn t imeLate 2Late 2No repaymentsdue unt i l March

    T ot al 2 4 5 , 0 0 0 1 0 , 0 0 0 2 3 5 . 0 0 0 1NOTES:1 The tota l of the 'balance remaining' column appears on the balance sheet. (See figure33.)2 The management committee should contact groups D and E, who are late with theirrepayments. The committee should consider charging interest on late repayments. For

    example, let us assume they decide to charge 2 per cent per month. Group D was dueto make a payment of 4,583 on 5 February. If this payment is not made until 26February, Group D will be required to pay an additional 20 days interest at 2% = 4583 x2% x 20 -r 28 (28 days in February) = 65.

    Figure 3 8 : Summ ary of loans outstan ding

    Bad debtsSome group s may be unab le to repay the loans they have received. Themanagement committee should contact the group to find out what theproblem is and to try to work out a new repaym ent plan.However, when i t becomes c lear that a loan is unl ikely to berecovered, the managem ent com mittee should instruct the bookkeeper

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    Adm inistration of loans 3 9to adjust the accounting records to record the am oun t that ha s been lostfrom the scheme. Accountants describe this as writing off the loan.Loans which cannot be recovered are known as bad debts. Thebookkeeper should record the details of the write-off in the loan registerand on the summ ary of loans outstanding .For example, let us assum e that the balance outstand ing from Group Ecannot be recovered. Although the project should continue to chase thedebt, the accounting records should be adjusted to reflect the fact that theloan is unlikely to be repaid. The 'write-off is recorded on the loan register(figure 39) and on the sum mary of loans ou tstanding (figure 40).

    Loan registerName of group: Group EAmount advanced: 45,000 Date of advance: 28 January 19XXInterest rate: 10%Purpose of loan: Purchase of a grinding mill.Repayment terms: 49,500 repayable in twelve equal monthly instalments starting 28 February 19XX.Repayments received:Date Total Voucher Repayment Interest Balance Commentsreceived of cap ital remaining

    45,000 written offon 28 February 19XX.

    Figure 39 : Example of loan register, showing write-off of bad debt

    Group

    ABCDEFTotal

    Summary of loansLoanIssued30,00050,00040,00050,00045,00030,000

    245,000

    Repaymentsreceived2,5004,1673,333

    ---

    10,000

    outstanding at 28 FebruaryBad debtswritten off

    45,000

    45,000

    Balanceremaining27,50045,83336,66750,000

    NIL30,000

    190,000

    19XXComments

    On t imeOn timeOn timeLateWritten offNo repayment dueuntil March

    Figure 40 : Summary of loans outs tandin g, showing write-off of bad deb t

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    4 0 Basic Accounting for Credit and Savings Schemes

    The bookkeeper should show the write-off as an expense of thescheme on the balance sheet. See figure 41 notes 1 and 3:Balance Sheet at 28

    NotesAssets

    CashBank balanceLoans outstanding 1

    Total AssetsLiabilities

    Savings held 2Net AssetsRepresented by:Grant received

    Accumulated deficit 3Net AssetsNotes on the calculations:1 Loans outstanding:Opening loans o utstandingAdd: Loans issuedLess: Loans repaid (excluding interest)

    Loans written off

    2 Savings held:Opening savings h eldAdd: Savings depositedLess: Savings repaid

    3 Accumulated deficit:Opening deficitAdd: Administration expenses

    Loan written offLess: Interest received

    February 19XX28 February

    54,23341,367190.000285,600(139.000)146.600200,000(53.400)146.600

    215,00030,000

    (10,000)(45.000)190.000

    133,0009,000

    (3.000)139.000

    7,8001,600

    45,000(1.000)53.400

    3 1 January

    58,50051,700215.000325,200(133.000)192.200200,000(7.800)192.200

    -215,000

    -

    215.000

    133,00_

    133.000-7,800-_7.800

    Figure 4 1 : Balance sheet, showing write-off of bad debt

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    Administration of loans 4 1Minimising bad debtsThe management committee should take steps to minimise the non-repayment of loans. Borrowers should understand that future loanapplications will not be considered un less the current loan is repaid.The management committee should monitor all loans closely. If theproject is in regular contact with bo rrow ers, problem s can be discussedat an early stage. In order to minimise losses resulting from bad deb ts,the committee could consider doing one or more of the following: Building an element of security into the loans. There are various ways ofdoing this; for example, loans could be guaranteed by a group of the

    borrower's neighbours. In addition, the project managers could agree(in writing) with the borrower that the equipment purchased with theloan remains the property of the project until the loan is fully repaid. Inthe case study, if the project could recover the grinding mill from Grou pE and sell it, the sale proceeds would count as a part repaym ent of theloan and the amou nt to be written off w ould be reduced accordingly. Linking credit and savings. The project could requ ire participants tosave with the scheme for a certain period before becom ing eligible fora loan. A nother ad van tage of a combined credit and savings scheme isthat, if borrowers know that their loan has been provided out of thesavings of their neighbours, they may feel more obligation to keeptheir repaym ents up to date. Ob taining references on loan applicants.

    Summ ary of this chapter1 Ap plicants for loans should subm it a budget and repayment planwith their loan application.2 The project shou ld draw up a loan agreement for every loan to ensurethat both part ies ( the organisers of the credi t scheme and theborrower) un dersta nd the terms of the loan.3 The bookkeeper should keep a loan register for each loan to recordrepayments received and the balance remaining.4 The bookkeeper should prepa re a summary of loans outstandingregularly so that the committee members can review the progress ofeach loan.5 The comm ittee should contact any group s which are not up to datewith their repayments, discuss the problem with them, and agree anew repayment plan.6 A loan wh ich cannot be recovered is a bad debt. The bookkeepershould write off the debt in the accounting records wh en instructed todo so by the manag ement comm ittee.

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    42

    CHAPTER 7:ADMINISTRATION OF SAVINGSIn order to administer the saving scheme efficiently, the bookkeepershould keep a savings card for each saver. The savings card shouldrecord all transactions with the saver. An example is shown below:

    Saver: 1Date Voucher Deposited Withdrawn Balance Received byJan 2 BR21 25 ,00 0 25 ,00 0 CashierF e b l R l 1 2,000 27,000 CashierNOTE: Saver 1 deposited 25 ,0 00 by cheque on 2 January (see figure 5) and 2,000 in cash on1 February (see figure 2 7).Figure 42 : Example of a savings card

    Each saver shou ld have a sav ings card or book which is a copy of thecard held by the credit and savings scheme. The savings card or book issometimes called a passbook. The saver should bring the card to thecashier w hen m aking a deposit or requesting a w ithdraw al.A sav ing scheme operates like a bank for the participants. The savingscard is the saver's 'bank statement': it records all the saver's transactionswith the scheme.DepositsWhenever a saver deposits money, the cashier should issue a receiptvouch er an d initial both copies of the savings card.

    Receipt voucherCredit scheme Voucher number R7Received from Saver 3 A moun t 500DescriptionReceived by

    DepositCashier Date 25 February 19XX

    Figure 43 : Example of a receipt voucher

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    Adm inistration of savings 4 3WithdrawalsBefore making a payment to a saver, the cashier should check that thebalance on the saver's card is enoug h to cover the amou nt requested.The managem ent com mittee may decide that savers must give noticein advance w hen they w ant to w ithdra w savings from the scheme.The cashier should com plete a paym ent vou cher an d ask the saver tosign the voucher and both copies of the savings card, to acknowledgereceipt of the money. Whenever a saver deposits or withdraws money,the cashier should take the opportun ity to check that the details on theproject's copy of the savings card agree exactly w ith the saver's copy.

    Payment voucherCredit schem e Voucher num ber 000056Paid to Saver 4 A moun t 3,000Description Repaid by chequeAuthorised by Cashier Received by Saver 4 Date 8 February 19XX

    Figure 44 : Example of a paym ent voucherUsing the cash and bank books for January (figures 14,15,17 and 18)and for February (figures 27 - 30) the savings cards can be completed asshow n in figure 45 (overleaf).Monthly savings summaryIn order to produce the balance sheet at the end of the month thebookk eeper w ill need to calculate the total savings held by the scheme.The bookkeeper should prepare a summary of the savings held at theend of each m onth :

    Savings summary at 28 February 19XXSaver Balance heldSaver 1 27 ,00 0Saver 2 46 ,50 0Saver 3 53 ,50 0Saver 4 10 ,00 0Saver 5 2,0 00Total 139,000

    Figure 46: Monthly savings summary

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    4 4 Basic Accounting for Credit and Savings Schemes

    DateJan 2F e b l

    DateJan 2Feb2

    DateJan 10Feb7Feb25

    DateJan 31Feb8

    DateF e b l 5

    VoucherBR2R l

    VoucherBR3R2

    VoucherR2R4R7

    VoucherBR4000056

    VoucherR6

    Deposited25,0002,000

    Deposited45,0001,500

    Deposited50,000

    3,000500

    Deposited13,000

    Deposited2,000

    Saver: 1Withdrawn

    Saver: 2Withdrawn

    Saver: 3Withdrawn

    Saver: 4Withdrawn

    3,000Saver: 5

    Withdrawn

    Balance25,00027,000

    Balance45,00046,500

    Balance50,00053,00053,500

    Balance13,00010,000

    Balance2,000

    Rec'd byCashierCashier

    Rec'd byCashierCashier

    Rec 'd byCashierCashierCashier

    Rec'd byCashierSaver 4

    Rec'd byCashier

    Figure 4 5 : Savings cards for the case s tudyInterestIn some saving schemes, savers are entitled to receive interest on theirsavings. For example, the project might be a simple savings scheme,wh ere a grou p of neighbours hav e opened a bank account together. Inthis case, the interest paid to savers will depen d on the interest paid bythe bank. The participants might decide to share out all the interestreceived in proportion to the am oun t depo sited by each saver. Or theymight decide to keep some of the interest in a central fund to cover costsof the scheme or to fund joint projects.

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    Administration of savings 4 5In a combined credit and savings schem e, the interest paid to saversmu st always be less than the interest paid by borrow ers (see Chapter 8:Sustainability). When the interest is due it should be entered on thesavings cards and shown on the balance sheet as an expense of thescheme.For example, let us assum e tha t interest is calculated at 0.5 per cent ofthe balance held at the end of each month (equivalent to 6 per centinterest over one year). Interest due at the end of January would havebeen calculated as follows:

    Saver 1Saver 2Saver 3Saver 4Total

    Savings at 3 1 Jan25,00045,00050,00013,000

    133,000

    Interest at 0.5%x 0.005 = 125x 0.005 = 225x 0.005 = 250x 0.005= 65x 0.005 = 665

    Interest due at the end of February is calculated as follows:Savings at 28 February Interest at 0.05%

    Saver 1Saver 2Saver 3Saver 4Saver 5Total

    The bookk eeper should enter the interest on the savings cards (figure 47)and show it as an expense on the balance sheet (figure 48, notes 2 and 3).

    27 ,12546,72553,75010,065

    2,000139,665

    x 0.005 = 136x 0.005 = 234x 0.005 = 26 8x 0.005= 50x 0.005= 10x 0.005 = 698

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    4 6 Basic Accounting for Credit and Savings Schemes

    DateJan 2Jan 31FeblFeb28

    DateJan 2Jan 31Feb2Feb28

    DateJan 10Jan 31Feb7Feb25Feb28

    DateJan 31Jan 31Feb8Feb28

    DateFebl5Feb28

    VoucherBR2Interest

    R2Interest

    VoucherBR3Interest

    R3Interest

    VoucherR2Interest

    R5R8

    Interest

    VoucherBR4

    Interest000056Interest

    VoucherR6

    Interest

    Deposited25,000125

    2,000136

    Deposited45,000225

    1,500234

    Deposited50,000250

    3,000500268

    Deposited13,000

    6550

    Deposited2,000

    10

    Saver: 1Withdrawn

    Saver: 2Withdrawn

    Saver: 3Withdrawn

    Saver: 4Withdrawn

    3,000

    Saver: 5Withdrawn

    Balance25,00025,12527,12527,261

    Balance45,00045,22546,72546,959

    Balance50,00050,25053,25053,75054,018

    Balance13,00013,06510,06510,115

    Balance2,0002,010

    Rec'd byCashierCashier

    Rec'd byCashierCashier

    Rec'd byCashierCashierCashier

    Rec'd byCashierSaver 4

    Rec'd byCashier

    Figure 4 7 : Savings cards, showing interest received

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    Administration of savings 47

    Balance Sheet at 28 February 19XXNotes 28 February

    AssetsCashBank balanceLoans outstandingTotal AssetsLiabilitiesSavings heldNet AssetsRepresented by:Grant receivedAccumulated de ficitNet Assets

    Notes on the calculations:1 Loans outstanding:Opening loans outstandingAdd: Loans issued in FebruaryLess: Loans repaid (excluding interest)

    Loans written off

    2 Savings held:Opening savings heldAdd: Savings deposited in February

    Interest creditedLess: Savings repaid in February

    Savings summary:Saver

    Saver 1Saver 2Saver 3Saver 4Saver 5Total3 Accumulated deficit:Opening deficitAdd: Administration expenses

    Interest paidLoan written off

    Less: Interest received

    54,23341,367285,600

    (140.363)

    200,000(54.763)

    3 1 January58,50051,700

    200,00035)

    215,00030,000(10,000)(45.000)190.000133,665

    9,000698f3.000)140.363

    -215,000-_

    215.000_

    133,000665_133JK5.

    Balance held per savings card28 February27,26146,95954,01810,115

    140.363

    8,4651,60069845,000(1.000)

    31 January25,12545,22550,25013,065

    i 3 3 J 5_

    7,800665

    -_8.465

    Figure 48: Balance sheet, showing interest paid to savers

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    48 Basic Accounting for Credit an d Savings Schemes

    A summary of this chapter1 The bookkeeper should prepare a savings card for each saver, to bekept by the project. The bookkeeper should record all transactionswith the saver on the savings card.2 Each saver should also be given their own savings card, with a recordof the details of their transactions with the saving schem e.3 The cashier shou ld issue a receipt voucher whenev er a saver dep ositsmoney. The cashier should sign the receipt voucher to confirm thatshe or he has received the money.4 The cashier shou ld use a payment voucher whenever a saver with-draws savings from the scheme. The saver should sign the paymentvoucher to confirm that he or she has received the m oney.5 W henever a saver mak es a deposit or a withdraw al, the cashier andthe saver should check that the two copies of the savings card (theschem e's copy and the saver's copy) match exactly.6 The bookkeeper should enter interest due on each savings card andadd it to the balance held. The bookkeeper sh ould enter the interest onthe saver's copy of the card w hen the saver next makes a deposit orwithdrawal.7 Interest is an expense of the savings scheme and is added to theaccum ulated deficit on the balance sheet (or deducted from an accum-ulated surplus).

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    49

    CHAPTER 8: SUSTAINABILITY

    Combined credit and savings schemesThe case study used throughout this book describes a combined creditand savings scheme. In a combined scheme, savers' deposits are used tomake loans to borrowers. Usually, interest is charged on loans toborro we rs, and interest is paid to savers for the use of their money.For the scheme to cont inue to operate, the interes t charged toborrowers will need to be enough to cover the expenses of the scheme.We have seen that the expenses of a credit and saving scheme fall intothree main categories: adm inistration expenses; bad debts written-off; interest paid to savers.

    If the interest received from borrow ers du ring an accoun ting period isgreater than the total expenses incurred during that accounting period,the scheme has mad e a surplus for that per iod . If the interest received isless than the total expenses there is a deficit for that accounting pe riod.In our case study , the balance sheet in figure 48 shows a deficit forFebruary of 46,298 and an accumulated deficit at 28 February of 54,763.This is not a sustainable situation . If the deficit con tinues to increase, thescheme w ill fail because it will not be able to repay savers.Revolving loan fundsSustainability is also an imp ortan t issue for credit schemes which are no tlinked to savings schemes. M any credit schemes are set up with a gra ntfrom a donor. Loans are made from the original grant and, when theseare repaid , further loans are made to other beneficiaries. Such a schemeis sometimes called a revolving loan fund because the idea is that thefunds revolve and benefit ma ny borrow ers in turn.Howe ver, in practice many revolving loan funds fail to revolve. Thereare three main reaso ns for such failures. Firstly, the peop le man aging th eproject may underestimate the importance of maintaining accurate

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    5 0 Basic Accounting for Credit and Savings Schemes

    accounting records and keeping track of loan repayments. Participantswho a re making repaym ents on time will lose confidence in the project ifthey see that other gro ups are not repaying their loans.Secondly, the interest charged on loans may not be enough to coverthe expenses of the scheme: the administration costs and bad debts.Thirdly, the interest charged may not be enough to ma intain the valueof the revolv ing fund , because of an increase in prices , or inflation.

    InflationAn increase in the general level of prices in an economy is calledinflation. If the interest charged on loans is less than the rate of inflation,borrow ers are not repaying enough to enable the fund to revolve.In our case study the credit schem e received a gran t of 200,000 on 1January . Let us suppose that on 1 January this was enough to purchase 5millet mills at 40,000 each. Econom ists call this the purchasing power ofthe fund. If prices are rising at 5 pe r cent pe r yea r, millet mills will cost42,000 each by 31 December. Therefore, unless the fund has receivedinterest of at least 10,000 (5 per cent of 200,000) during the year, thepurchasing power of the fund will have fallen, and there will not beenough m oney to buy 5 new millet mills.If a borrower borrows 40,000 on 1 January he or she has enough topurc hase one m illet mill. If the bo rrow er repays 40,000 by 31 December,this will not be enough for a new borrower to purchase a millet mill,because they now cost 42,000.In a situation of high or unpredictable inflation it will be difficult tocalculate the appropriate interest rate to charge borrowers in order tosustain the purchasing pow er of the revolving fund. In such a situation itwould be sensible to link the loan repay ments to a hard currency, such asUS dollars.For example, consider the loan to Grou p C in the case study : 44,000repayable over 12 months from 28 February. Let us assume that theexchange rate between the currency of the case study coun try and the USdollar is as follows:January 19XX $1 = 100February 19XX $1 = 130March 19XX $1 = 140The value of the loan (plus interest of 10 per cent) issued in January indollars was $440 (44,000 -=-100). This means that the twelve monthlyinstalments for repayment would be equivalent to $37 ($440 -r 12roun ded to nearest $). Therefore, if the loan repay ments are linked to theUS dollar, the borrow er sho uld repay 37 x 130 = 4,810 on 28 February and37 x 140 = 5,180 on 28 March.

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    Sustainability 51

    Sustainability and accessibilityA sustainable revolving credit scheme is an attractive prospect fordonors : the i r o r ig inal donat ion wi l l be re-cycled to reach manybeneficiaries.For a loan fund to be sustainable witho ut further injections of fundsfrom don ors, we hav e seen that the interest charged on loans will need tobe h igh enough to cover the r e v e n u e e x p e n s e s of the fund(adm inistration costs, bad deb ts, interest paid to savers) and inflation.The required interest rate may be more than the beneficiaries canafford to pay . However, sustainability may not be the prim ary objectiveof the credit scheme. The managem ent com mittee may decide that beingable to offer low interest rates is mo re imp ortan t.Donors may be willing to fund some of the revenue expenses of acredit scheme in order to make the loans cheaper (by charging lessinterest) and therefore more accessible.A donor might specify that part of their grant could be used to fundrevenue expenses. For example, in the case study , the project received agrant of 200,000. If we assume that 60,000 was given to fund revenueexpenses, we can am end the balance sheet in figure 48 as follows:

    Balance Sheet at 28 February 19XXNotes 28 February 3 1 January

    AssetsCash 54,23 3 58,50 0Bank balance 41 ,36 7 51 ,70 0Loans outstanding 19 0.0 00 21 5.0 00Total Assets 285,600 325,200LiabilitiesSavings held (140 .363 ) (133 .665 )Net Assets 145.237 191.535Represented by:Grant received 14 0,0 00 14 0,00 0Accumulated surplus 1 5.237 51.535Net Assets 145.237Note:1 Surplus:

    Surplus brought forward 51 ,53 5Grant receivedAdministration expensesInterest paidLoan written offInterest receivedSurplus carried forward

    Figure 4 9 : Balance s hee t, showing grant received for revenue expenses

    (1,600)(698)(45,000)1.000

    5.237

    60,000(7,800)(665)

    51.535

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    5 2 Basic Accounting for Credit and Savings Schemes

    A summary of this chapter1 The sustainability of a credit and savings scheme depen ds on: the ma intenance of accurate accoun ting records charg ing an interest rate on loans that is eno ugh to cover theadm inistration expenses of the scheme, bad de bts, interest paid tosavers and inflation.2 Sustainability may not be the prim ary objective of the scheme. Thema nagem ent comm ittee of a credit scheme may decide to subsidisethe loans by reducing the rate of interest charged to make them moreaffordable.

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    53

    CHAPTER 9: STOCKInstead of making loans, some credit schemes prov ide goods on credit toparticipan ts. For example, an anim al traction project may receive a grantwhich it uses to purchase ox-ploughs and bean seeds. It then sells theplou ghs and seeds to local gro ups. Some grou ps are able to pay for theirploughs or seeds immediately. Others are allowed to pay later: theyreceive their plou ghs and seeds on credit.Items which a project holds for resale are known as stock. Once aproject is handling stock the project leaders should consider thefollowing aspects of stock managem ent: record keeping; security; the value of the stock; the cond ition and useful life of the stock (particularly if the goods heldin stock are perishable).

    The man agement committee should appo int a storekeeper to handlestock m ovem ents an d record k eeping. If the project is small the bookkeeper m ay also be responsible for the stock.SecurityThe storekeeper should ensure that there is a secure place in which tokeep the stock. The project may have to rent a wareho use or co mpou nd,bu t for small items a lockable room or cupboard may be sufficient.The store should be organised so that there is a separate location foreach stock item. For example, there might be one shelf for tins of beanseeds and anothe r shelf for tins of melon seeds. Only one person shou ldha