Unit 1: Accounting of PACS

Accounting of PACS 

PACS (Primary Agricultural Credit Societies) are the village-level cooperatives that provide loans, supply agricultural inputs, and promote rural development.
They must maintain proper accounting records to ensure transparency, audit compliance, and proper financial management.

Accounting Records to be Maintained by PACS

PACS must maintain the following essential books and registers:

A. General Books

1. Cash Book – records all cash receipts and payments
2. General Ledger – summary of all accounts
3. Journal Book – for all non-cash transactions
4. Trial Balance – periodic summary to check accuracy

B. Member-Related Registers

1. Membership Register – details of members
2. Share Capital Register – shares issued, paid, and outstanding
3. Loan Register – loan sanctioned, disbursed, repaid
4. Demand, Collection & Balance Register (DCB) – important for monitoring loan recovery

C. Credit Activity Registers

1. Kisan Credit Card (KCC) Register
2. Agricultural Input Distribution Register
3. Overdue Loan Register

D. Other Mandatory Books

1. Fixed Asset Register
2. Stock Register (seeds, fertilizers, pesticides, etc.)
3. Day Book
4. Investment Register
5. Audit Objection Register

Basic Accounting Principles & Policies for PACS

PACS accounting follows standard accounting principles:

(i) Double Entry System

Every transaction has debit and credit.

(ii) Accrual Basis of Accounting

Income and expenses are recorded when they occur, not only when cash is paid/received.

(iii) Conservatism / Prudence

Provision for bad debts, overdue interest, etc. must be created.

(iv) Consistency

Same accounting methods must be used every year.

(v) Going Concern

PACS is assumed to continue in operation.

(vi) Separate Entity Concept

PACS accounts are kept separate from members’ personal accounts.

(vii) Materiality

Record significant items clearly—major loans, subsidies, grants.

Steps for Preparation of Financial Statements

Step 1: Record Transactions

Maintain entries in Cash Book, Journal, Ledger, Loan Books, etc.

Step 2: Prepare Trial Balance

Check mathematical accuracy of accounts.

Step 3: Adjusting Entries

• Provision for bad debts
• Interest accrued (on loans & deposits)
• Depreciation on assets
• Closing stock valuation

Step 4: Prepare Final Statements

PACS must prepare:

1. Receipts & Payments Account
2. Income & Expenditure Account
3. Balance Sheet (as per cooperative society rules)
4. Notes to Accounts

Step 5: Present to Auditor and General Body

Financial statements go for audit, then approval in the Annual General Meeting (AGM).

Accounting Entries for Credit Activities of PACS

Credit activities include: loan disbursement, loan repayment, interest collection, overdue charges, subsidies, etc.

A. Loan Disbursement

When PACS gives loan to a member:

Loan to Member A/c — Dr
 To Cash/Bank A/c

B. Loan Repayment by Member

When member pays principal amount:

Cash/Bank A/c — Dr
 To Loan to Member A/c

C. Interest Earned on Loan

When interest is received:

Cash/Bank A/c — Dr
 To Interest on Loans A/c

If interest is accrued but not yet received:

Interest Receivable A/c — Dr
 To Interest on Loans A/c

D. Provision for Bad & Doubtful Loans

For overdue loans:

Provision for Bad Debts A/c — Dr
 To Loan to Member A/c

E. Subsidy Received from Government

Cash/Bank A/c — Dr
 To Subsidy/Grant A/c

Accounting Entries for Non-Credit Activities of PACS

Non-credit activities include:

• Sale of seeds, fertilizers, pesticides
• Commodity procurement (e.g., wheat, paddy for MSP)
• Consumer goods distribution
• Rental income
• Commission income

A. Purchase of Fertilizer/Seeds for Distribution

Stock (Fertilizer) A/c — Dr
 To Cash/Bank/Supplier A/c

B. Sale of Fertilizer/Seeds to Farmers

Cash/Bank/Member A/c — Dr
 To Sales A/c

Cost of goods sold is adjusted through stock.

C. Commission Earned (e.g., PM-KISAN, pension, PDS distribution)

Commission Receivable/Cash A/c — Dr
 To Commission Income A/c

D. Procurement of Paddy/Wheat for Government

When PACS buys from farmers:

Purchases A/c — Dr
 To Cash/Bank/Farmer A/c

When government pays:

Cash/Bank A/c — Dr
 To Sales/Procurement A/c

E. Rent from Godown / Building

Cash/Bank A/c — Dr
 To Rent Income A/c

F. Salary, Wages, Office Expenses

Salary/Wages/Expense A/c — Dr
 To Cash/Bank A/c

Summary Table (Quick Revision)

Area	Key Points
Records	Cash Book, Ledger, Loan Register, DCB, Stock Register
Principles	Accrual, Double Entry, Consistency, Prudence
Financial Statements	R&P, I&E, Balance Sheet
Credit Entries	Loan disbursement, repayment, interest, provisions
Non-Credit Entries	Stock purchase, sales, commission, MSP procurement

Accounting Entries for Common Activities in PACS

These entries apply to both credit and non-credit operations.

A. Share Capital Transactions

1. When a member purchases shares

Cash/Bank A/c — Dr
 To Share Capital A/c

2. When share capital is refunded

Share Capital A/c — Dr
 To Cash/Bank A/c

B. Cash Deposits and Withdrawals

1. Member deposits savings

Cash/Bank A/c — Dr
 To Member Savings A/c

2. Member withdraws savings

Member Savings A/c — Dr
 To Cash/Bank A/c

C. Fixed Asset Transactions

1. Purchase of computer/machinery

Fixed Asset A/c — Dr
 To Cash/Bank A/c

2. Depreciation on fixed assets

Depreciation A/c — Dr
 To Accumulated Depreciation A/c

D. Payment of Expenses

1. Salary payment

Salary Expense A/c — Dr
 To Cash/Bank A/c

2. Electricity/Telephone

Expense A/c — Dr
 To Cash/Bank A/c

E. Income from Commission (e.g., PDS, PM-KISAN, pensions)

Cash/Bank A/c — Dr
 To Commission Income A/c

F. Interest on Deposits Earned by PACS

Cash/Bank/Interest Receivable A/c — Dr
 To Interest Income A/c

Preparation of Final Accounts in PACS

Final accounts are prepared annually and include:

A. Receipts & Payments Account

• Summary of all cash transactions
• Does not follow accrual concept

B. Income & Expenditure Account

• Similar to Profit & Loss A/c
• Shows surplus/deficit
• Based on accrual accounting

C. Balance Sheet

Shows:

• Assets
• Liabilities
• Member equity
• Reserves & surplus

Steps to Prepare Final Accounts

Step 1: Close all books (Cash Book, Ledger, Registers).

Step 2: Prepare Trial Balance.

Step 3: Pass adjusting entries:

• Depreciation
• Interest receivable/payable
• Provision for overdue loans
• Valuation of closing stock
• Outstanding expenses

Step 4: Prepare:

• Income & Expenditure A/c
• Receipts & Payments A/c
• Balance Sheet

Step 5: Attach:

• Schedules (loans, deposits, fixed assets)
• Notes to accounts

Step 6: Send for Audit and then present in AGM.

Understanding the Financial Statements of PACS

Below is a simple breakdown of how to read them:

A. Balance Sheet of PACS — Key Items

Assets

• Cash in hand
• Cash at bank
• Loans outstanding
• Fixed assets (computers, furniture)
• Stock of seeds/fertilizers
• Accrued income

Liabilities

• Share capital
• Member deposits (RD, FD, Savings)
• Borrowings from DCCB / Apex Bank
• Outstanding expenses

Equity

• Reserves (General Reserve, Bad Debt Reserve)
• Surplus/Deficit

B. What to look for (MBA perspective)

1. Loan Recovery Ratio - Higher recovery = strong financial health.
2. Overdue Position- High overdue loans = weak credit management.
3. Working Capital Position - Indicates liquidity and short-term strength.
4. Dependence on borrowings - Lower borrowing = better sustainability.
5. Reserves growth - Shows long-term stability of the cooperative.
6. Profitability / Surplus Trend - Positive surplus ensures member benefits.

Computerization of PACS

Computerization of PACS was introduced to:

• Reduce manual errors
• Improve transparency
• Provide real-time data
• Enable online audit
• Integrate with banks and government portals

Tools Used

• PACS Management Software
• Digital Loan Registers
• Core Banking Solutions (CBS)
• Online procurement systems (for MSP crops)

Accounting under CBS (Core Banking Solutions) Environment

CBS integrates PACS with DCCB/Schedule Banks allowing:

• Real-time transaction posting
• Online receipts and payments
• Automated ledger updates
• Instant loan disbursement entries
• Online EMI calculation
• Automated NPA/Overdue tracking

Features of CBS Accounting

1. Real-time recording

Every transaction updates member accounts instantly.

2. Automated Passbooks

Member passbooks (savings/loans) are updated automatically.

3. Digital Audit Trail

Auditors can check:

• Login records
• Vouchers
• Loan ledgers
• Approvals

4. Integrated Financial Statements

CBS can auto-generate:

• Trial balance
• Balance sheet
• Income & expenditure
• Cash book

5. Online Payment Integration

Supports:

• UPI
• NEFT/RTGS
• Direct Benefit Transfer (DBT)
• PFMS (Public Financial Management System)

Example – Accounting in CBS Environment

Transaction: Member deposits ₹5,000 in savings account.

CBS automatically passes:

Cash/Bank A/c — Dr
     To Member Savings A/c

→ Member gets instant SMS
→ Ledger updates instantly

Summary Table (Quick Revision)

Topic	Key Points
Common Entries	Share capital, expenses, deposits, interest, assets
Final Accounts	R&P Account, I&E Account, Balance Sheet
Understanding FS	Check overdue, surplus, reserves, liquidity
Computerization	Transparency, digital registers, automation
CBS Accounting	Real-time, integrated, automated statements