LO1: Create awareness about cooperatives

At the end of this learning outcome: the learner will be able to understand:
 Meaning of cooperatives
 Importance of cooperatives
 Types of cooperatives in Ethiopia
 Management: evolution, name and functions
 Democratic control- management structure of cooperatives
 Power, duties, responsibilities of chief executives
 Relationships between chief executives and the board of directors
 Decision making in cooperatives
 Unique features of cooperatives management
 Cooperatives management:- meaning and objectives

1.1 Meaning of cooperatives

The term co-operation is derived from the Latin word co-operai, where the word “Co” means
with and aperari” means to work. Thus co-operation means working together.

So those who want to work together with some common economic objectives can form a society which
is termed as “co-operative society”

Cooperative societies is a voluntary association of persons who work together to promote their economic
interest. It works on the principles of self-help as well as mutual help the main objective is to provide
support to the members. “Cooperative society” means a society established by individuals on voluntary
basis to collectively solve their economic and social problems and to democratically manage same.
Ethiopian cooperative society proclamation Number 147/98)

A cooperative is an autonomous association of persons united voluntarily to meet their common

economic, social and cultural needs and aspiration through a jointly owned and democratically
controlled enterprise. It is not only association but also both association and enterprises . It is rendering
of service at a minimum costs.

1.2 Importance of cooperatives

A co-operative form of business organization has the following advantages:

1. Easy formation: formation of a co-operative society is very easy compared to a joint stock
company. Any ten adults can voluntary form an association and get it registered with the
registrar of co-operative societies.

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 2. Open membership: persons having common interest can form a co-operative society.
Any competent person can become a member at any time he/she likes and can leave the
society at will.
3. Democratic control: a co-operative society is controlled in a democratic manner. The
members cast their vote to elect their representatives to form a committee that looks after
the day to day administration. This committee is accountable to all the members of the
society.
4. Limited liability: the liability of members of a cooperative society is limited to the extent
of capital contributed by them. Unlike sole properties and partners the personal properties
of members of the co-operatives societies are free from any kind of risk because of
business liabilities.
5. Elimination of middle person’s profit: through co-operatives the members of
consumers control their own supplies and thus, middlemen profits are eliminated.
6. State assistance: both central and state governments provide all kinds of help to the
societies. Such help may be the form of capital contribution, loans at low rates of interest,
exemption in tax, subsidies in repayment of loans etc.
7. Stable life: a co-operative society has a fairly stable life and it continues to exist for a
long period of time. Its existence is not affected by the death, insolvency, lunacy or
resignation of any of its members.

1.3 Types of cooperatives in Ethiopia

 A society may engage in either production or services rendering activities or in both
 The field of activities to be engaged in by any society shall be determined by the by-laws
of the society
“Society” means a cooperative society established and registered in accordance with the
proclamation and it shall in particular include the following:

a) Agricultural cooperative societies

b) Housing cooperative societies
c) Industrial and artisans producers cooperative societies
d) Consumers cooperative societies
e) Savings and credit cooperative societies

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 f) Fishery cooperative societies
g) Mining cooperative societies

Although all types of cooperative societies work on the same principle, they differ with regard to
the nature of activities thy perform

1.4 Management –evolution, nature and functions

Meaning and definition of management
Human kinds are confronted with the perennial of fulfilling the umpteen needs with the
available resources.

Every human activity is motivated towards this need fulfilling effort. Precisely management is a
tool, which helps to mobilize material and human resources and their effective utilization.
Management exits in some degree in any human endeavor in a social or economic environment
be it school, hospital or a business enterprise. The purpose of management is to lay down
principles and evolve technique and process which will enable the attainment of group goals at
the least cost, time, money, material or discomfort.

Management is essential in all organized and goal directed effort. By means of management,
group goals are achieved easily; resources are amplified and needs are fulfilled. Management
provides effectiveness to human efforts. It helps to maintain equipments, plants, offices,
products, services and human relations effectively. Management provides effectiveness to
human efforts. It helps to maintain equipment, plants, offices, products, services and human
relations effectively.

Management is a dynamic and indispensable aspect of modern civilization.

According to P.F. Drucker it is creative factor of production without which all other factors like
capital, labor etc.. will be latent.

Definition

E.F.L. Brech:

“Management is a social process entailing responsibility for the effective and economical
planning and regulation of the operations of an enterprise, in fulfillment of a given purpose or
task.”
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 P.F. Drucker:

“It is multipurpose organ that manages the business and mangers and mangers workers and
work:.

Kooartz and Donnel:

“The job of management is to create and maintain an environment in which individuals can
work together to accomplish group goals,”

Joseph Massie:

“Management is a process by which a cooperative group directs action towards a common goal:

John Mee:
“Management is the art of securing maximum result with a minimum effort so as to secure
maximum prosperity and happiness both for employer and employees and give the public the
best possible services.”

Functions of management
The functions of management are the key elements, which indicate the basic activities to be
performed to achieve the goals of the group.

These are the specific activities, which constitute the management. These functions are
considered as a district process; undertake sequentially to fulfill the job of management. Such
functions are common to all managerial work. They are universal to any type of organization be
it a factory, a hotel or a university.
It may not be difficult to identify the common elements found in the above versions of the
management functions. Planning, organizing, staffing, direction, coordination and control are
the commonly recognized and widely adopted elements of management around which the theory
and practice of management is built.
 Planning:-
Planning is the basic function of management. It implies forecasting the future, predetermining
the activities to be performed and prescribing the means and methods of achieving the activities
planned. It involves setting objectives, policies and programmes and making decision to achieve
them.
 Staffing
Staffing involves supplying human power to the positrons created in the organizational
structure. It involves the estimation of human power needs for each job, appraising and selecting

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candidates, training and development. Staffing function is generally confined to managerial
human power. Certain authors prefer to treat staffing as a part of the organizing function.

 Directing
Directing involves guiding and leading the subordinates. By direction subordinates are oriented
to the organizational objectives and are motivated towards improved performance. Simply it is
this, function, which puts the group in to action and encourages them to work with zeal and
enthusiasm.

 Coordinating:
Coordinating involves the effort to ensure that all groups and persons work together
harmoniously, efficiently and economically towards the common objectives. Some authors
consider this as the essence of management, prevalent in all functions and do not consider as an
element.

 Controlling:-
Controlling ensures that performance according to pre-determined standards and plans. It
implies measurement of performance, comparison of performance with the standard set and
corrective action to rectify discrepancies and to overcome hindrance, if any in carrying out the
plan.

Management as an art as well as a science

One of the fundamental issues in the study of management is whether it is an art of a science.
Management is perceived primarily as a human quality, the creative talent and the inborn ability
to influence the actions of others. Managers ship is often associated with leadership. It has been
defined as an art of getting things done through and by others. The concept of management is
regarded as an art due to the following factors:

 It is an inherent quality of an individual endowed with certain inborn qualities

 Decisions are quite often based on intuitive judgments of the manager rather than any set
formula
 Each decision situation is unique with a set of decision premises of its own which may
not be relevant to another situation. In other words it is rare to come across two exactly
similar decision situations.
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  The management ability is a subjective phenomenon determined by human quality, which again
in a gift of nature.

Contrary to the school of thought, this attributed managerial performance to naturally endowed human
skills. F.W. Taylor founded the scientific management movement, which regarded management as a
science. Any field of study can be regarded as a science provided.

 It is based on scientifically verifiable truths by means of experimentation

 It is universal in the sense, it is applicable to all situations with same result
 It is transferable, i.e. by means of training the scientific skills can be transferred from one
individual to the other.
 It adopts standardized, scientific tools and formulae

Judging from the above criteria management cannot be regarded as perfect science. The task of scientific
management at best can be to minimize the subjectivity in decision making and introducing more and
more objectivity. The role of individual manager and his perception and judgment skill can never be
underestimated.

Therefore, management can never be a perfect Art or a pure science. It is an admixture of both and
deriving feedback from practice.

1.5 Democratic control: management structure of cooperatives

Cooperation is a people centered organization. As such the concept of democracy is central to
cooperative philosophy. Democracy is a product of modern civilization.

The Rochdale Pionners took up the principle of universal suffrage from Charist Movement and applied
to our economic situation. Thus the cooperative democracy is essentially an economic democracy.

The principles of freedom of association, equality within the organization and participation in the
organization process are the foundation of cooperative democracy. Economic democracy when it is
pure, completely excludes capital as a source of authority; decisions are taken by persons concerned or
the representatives that they have designated, all having the same right.

Structure of cooperative democracy

Democratic control in cooperatives is exercised at three levels namely: the general body, board
of directors and chief executive. The general body of members is the ultimate and supreme
authority and supreme authority in the matters concerning the society. This body should at least
meet once in a year.
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 The general body meeting concentrates on three main items of business:
1. To receive an approve a report of the year work, accompanied by financial statements;
2. To decide on how any surplus of the year work can be used and
3. To elect a committee to direct the affairs of the society

Besides the above routine matters, other major changes like amendment of by-laws, the general body
must approve division and amalgamation etc. The reports and statements presented in the general body
should be broad and simple, so that even the ordinary members understand them. They should not
contain technical details and full facts. There must be greater scope for discussion and criticism.

For administrative convenience and effective control the general body elects a board of directors. The
board of directors derives substantial powers for direction, supervision and control of cooperatives. The
two stage control machinery is created to exercise effectively control. While at the same time keeping
the organization at all times in the hands of member-patrons. The Board of directors at the same time
need not take detailed operating decisions. They can leave the day-to-day administration to the Chief
Executive and his assistants and refrain from interfering in their work. In order to ensure sound
functioning the Board can review the progress periodically. The board of Directors derives powers and
authority from general body on the one hand and delegates powers to a large extent to the chief
executive. The chief executive, being the executive head is responsible for guiding the operations and
leading the organization to success.

 Democratic Control Effectiveness

The democratic control will be effective only when there is active participation of members. The active
participation of member- patrons in the control and management is very essential for efficient
functioning of cooperatives. Members actual participation in the control of cooperatives include
attending and participating in membership meetings, taking part in voting, contesting in election, serving
in one or more committee, careful study of the reports presented, extending continuous support and
showing genuine interest in the affairs of cooperatives. Several studies conducted in India and a board
reveals that the member participation has declined to a great extent particularly in large cooperatives.
The factors responsible for poor participation of members include: illiteracy and ignorance lack of
loyalty, ineffective leadership, inappropriate system of communication, members apathy and domination
of vested interests. In order to improve the member participation and involvement and to strength then
the democracy following measures have been suggested by Herman Lam.

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 1. Local Sub- Regional members meetings:-

When the organization is too large the membership meetings tend to become unwieldy. In order
to make the democratic control workable it becomes necessary to organize separate membership
meetings in the sub –regions of the society. These meetings should in principle discuss all the
important subjects meant for the final general assembly. The sub-regional meeting should not
pass or reject reports and proposals but only convey to the general meeting the opinion of the
local members. In the sub regional meetings the members should elect representatives to the
general assembly and also the local advisory committee who interlink the members and the
central Board.

2. Local advisory committee in the sub Region:

When the cooperative society has several branches, formation of local committees will help to
make democratic control more effective. The committee should meet regularly and summarize
the results of the society from the local membership point of view. It is also the responsibility of
the local committee to canvass for more membership, organize member education programs and
represent the problems of members to the Board.

3. Election of Board members:

Elections to the board must be conducted regularly; representation must be given to all sections
and regions in the board. The by-laws must be formulated so as to avoid unnecessary political
interference and vested interests. Those who have served in the local committees and those who
have taken part in educational and training programmes should be given greater opportunity in
the elections.

4. Sub- committee
When the Board is large, it is convenient to divide the Board into different sub –committees for effective
control. This gives a sort of specialization as each committee deals with one subject. They make the task
of the Board easy. Though the sub- committee should not take decision on its own, they have the right to
control such aspects of the working of the society over which they have authority.

5. Control Committees:
In each society it is necessary to form a control committee from among the members of the Board. The
control committee will have to control the accounts and safeguard the assets of the society and to see
that the Board is working efficiently in the interests of members. They have the right to question

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 the actions of the Board and they should also collaborate with the external or government
auditors in their audit work.

6. Member education:
Democratic control can work well only when members are enlighted. Member education
programs must be implemented effectively.

1.5.1 Management structure of cooperatives structure of cooperative

organization

Functions Responsibility
General body
Sets the society objectives: Uses the services of the
decides bylaws: exercises cooperative, elects capable
Membership elects directors, provides capital for
ownership control over the
society growth operation and expansion, studies
boards, and auditors reports

Interprets objectives in specific

Elects president and appoints
details formulates specific policies
manager is responsible to
to achieve objectives: studies Board of directors membership for results of operation
management reports and
operates within the by-laws of the
evaluates progress: provides
society and abides by its own
leadership to management and
policies
membership approves salary
ranges for be at all levels.
Has the responsibility of enforcing
President board policies and providing
Chairperson of the board and guidance to the general manager
exoffco member of all committees, Appoints between board meetings is
provides the link between board responsible to the board for all
and management actions
General Managers

Responsible to the president

Manager by
Managers the business in line with Manager of between board meetings; reports
department
board policies, establishes department to the board at meetings; provides
operating procedures, sets out jobs factual information so that the
to be done; engages, supervises board can make policy decisions.
and trains staff; less salaries within Staff Staff
ranges established the board

1.6 Powers, duties, responsibilities of chief executives and board of directors

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  Board of directors – their functions

They are a group of persons, democratically elected, representing the general membership. They
derive powers from members and are accountable to them.

They are responsible for safeguarding the interests of members, maintaining the assets and
exercising overall authority in the organization. The board of directors in cooperatives is
representatives of member-users rather than big financial investors. The board is empowered to
delegate the managerial responsibility to competent, professionally qualified managers. Though
they delegate the powers, the ultimate responsibility rests with them.

They constitute a bridge between members and the managers. “it is often characterized as
exercising broad supervision rather than executing details; setting objectives rather than
planning how they should be achieved; establishing policy rather than administering, appraising
rather than controlling.”

1. Setting up organizational goals:

The board is responsible for setting up organizational goals for achieving specific objectives and
interpreting the objectives. It is also responsible for making required change in the long term
objectives.

2. Establishing policies and programs”

The board in its meeting should consider important policies and long-term programmes
involving vital matters and approve them. It should also provide a framework within which
these policies and programs could be carried out by managers and decide on the mainlines of
activities.

3. Delegation of authority and responsibility:

The board should be careful in choosing managers with required knowledge and expertise since
the Board members are lacking in knowledge about business and corporate affairs. The board
should realize the necessity of delegating responsibilities as well as authority to the managers.
One cannot be held responsible without being armed with adequate powers to make one’s own
decision.

4. Systematic appraisal of operations:

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Systematic appraisal of the operations of the organization is another responsibility of the board.
It should call for periodically reports and statements, which would reveal them the results of the
operations and extent to which the organizational goals have been achieved. With such
appraisals the Board will be able to exercise overall control over the management.

5. Maintain public/member relations:

It is the responsibility of Board of build a bridge between general membership and paid staff.
The board always represents members interest as well as the organization to the public, by
means of good public relations.

 Chief executive – function

The chief executive is a key figure in the management structure of cooperatives. He is employed
by the board and is accountable to it. He therefore should consider board as his employer and
recognize this fact in making all dealings with it. The manager guides the affairs of the
organization in its day-to-day works. He coordinates the diverse influences exerted by members,
employees, customers, public and government. He is almost important for cooperatives. The
success of the cooperative institution very much depends on the initiative; drive and
effectiveness of the manager. Following are the functions of chief executive.
1. Executive policies:
Manager is responsible for executing policies and accomplishing goals and objectives set up by
the board. He is responsible for planning, organizing, direction, coordination and control. In
general he has takes all steps necessary for carrying out the programmes of the organization.

2. Employing personnel and delegating powers:

Selection of suitable personnel for different cadres is the responsibility of the manger. He
defines their functions and responsibilities and delegates powers that are necessary for the
execution of the responsibilities assigned to this subordinates.

3. Furnishing information to the board:

The manager should report periodically and should furnish information needed by the board for
controlling and appraising the operations of the organization and reviewing of progress. He is
expected to give only broad factors about over-all results, and not all sundry and insignificant
details.

4. Assisting the board

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The manager helps the board in setting up realistic goals for the organization. He also provides
information and assistance in formulation of policies and programmes. He is in a position to
guide and advice the board since he has firsthand knowledge about the affairs of the
organization.

1.7 Relationship between chief executives and the board of directors boards –
executive relationship.
The relationship between board of directors and chief –executive of cooperatives is a vital issue
in the cooperatives management. Fostering a healthy and constructive relationship is essential
for the success of cooperative democracy. There is constant interaction between board of
directors and chief –executive, the former as policy-making body and the later as executive
head. Clear demarcation of their functions and responsibilities is a pre-requisite for smooth
functioning of cooperative democracy. Following are the respective powers and functions of the
board of directors and chief –executives.

1. There should be a perfect understanding between board and executives

2. The board members should realize that they acquire power only when they are assembled
in a formal meeting.
3. Board meeting conducted at periodic intervals, is also a factor, which promoted healthy
relationship between board and executives.
4. The board members should realize their responsibility and they should not use the
cooperative society for their personal progress or for any political gains.
5. For smooth functioning of the cooperatives, the board members should work as a team
and they should not allow the groupism to develop among themselves.
6. The manager and other personnel should keep themselves away from the group rivalries
among board and they should not take part in elections.

1.8 Decision making in cooperatives

Decision making

Decision –making is the essence of management so much so the management itself is

understood as a decision –making science.

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Decision-making a universal function of all the managers in every part of the organization. The
decision –making is an integral part of the management process such as planning, organization,
direction, control etc. a decision is a judgment. It is a choice between alternatives. Decision
making is a vital task to give the activities of the members and employees a goal and direction
and to determine how best to use the material resources of the cooperative. The decision-making
in a cooperative set up is a complicated task.

The managerial decisions may vary greatly according to the nature, significance and the levels
of decision.

Kind of managerial decision Level authorized to make decision

Goal decision ---------------- Upper management level

(What is to be reached)?
Means decisions -------------------- Middle management level
(By what means?)
Lower management level
Action decision ------------------
(How?)

Managerial decisions may also be sub- divided in to strategic decision and tactical
decisions

 Strategic decisions have long term importance and a complex character. They are goal
decisions and bring about fundamental changes. They are directed and coordinated at the
higher levels of the enterprise.
 Tactical decisions are routine decision, which are directed at the regulation of limited
fields of activity or shorter periods. They are based on strategic decisions and aim at their
implementation. The tactical decisions are the task of middle and lower level
management.

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 On the basis of method, the decision making, may be classified as programmed and
unprogrammed decisions.

 Individual decision-making is used in small organization as times of emergency and in

circumstances where the group has little knowledge. The prestige, power and the
expertise enjoyed by the individuals who make decision are the factors, which contribute
to individual decision-making.
 Group decision-making is participative decision making. It makes use of collective
wisdom of several individuals. The members of the group get a chance to voice their
opinion. The technical service of experts may also be made available. The group
decision may take either of the two forms: group advisory or group deterministic.

Process of decision making

The decision –making involves logical and sequential steps, which have to be followed in any
scientific decision-making process. According to P.F. Drucker, “the decisions making have five
distinct stages; defining the problem: analyzing the problem, developing alternative solutions;
deciding upon the best solutions; converting the decision into effective action.”

1. Developing the problem

A manager must continuously scan the environment to identify and perceive the problems of
development. In a cooperative organization a manager can get new problems from the orders of
superiors, direction issued by board of directors, suggestions from members and employees or
by analyzing the system of operation and accounting. The common problem areas in
management which involve crucial decisions are: the factors such as material, money,
manpower, technology, etc which is available to a cooperative organization. The choice of a
course of action depends on that factors which is considered critical. The efficiency of the
managerial decision- making lies in developing as many alternative solutions as possible. If
there is only one course of action for a particular goals, that course is probably wrong.

4. Deciding upon the best solution

The alternative courses of action must be classified, compared and analyzed. Every course of
action must be judged on the basis of the cost and risk involved. The futurity of the decision and
its relation to various aspects of business must be assessed properly. The managerial analysis
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and cost benefit analysis must be made to determine the quantitative outcome of the decision.
The quantitative aspects of the decision must also be assessed. For facilitating the objective
decision making in a cooperative organization, the following are decision, criteria.

 Inevitable national economic necessities;

 The necessary speed in solving the problem
 Economic criteria, for example, with regard to expenditure and result;
 Quantitative characters which are to be attained
 Social criteria, for example, the necessity of maintenance of work places;
 Economic, political objectives’ of subordinates bodies

Based on the above criteria the decision must be arrive at by competent bodies particularly in
respect of cooperative organizations, where inner democracy has to be preserved. Every decision
must have the democratic sanction.

1.9 Unique features of cooperative management

While applying the principles of management of one should not ignore the fact that the
cooperative as a form of business organization possesses very distinct characteristics. It differs
fundamentally in various facets of its make up as compared to the investor owned business, in
the objectives (input), transformation process and services rendered (output).

Cooperative cannot slavishly imitate capitalist enterprises even the best of them. The concept of
efficiency as applied to the whole management cannot be the same, because the aim is not the
same. A capitalist or family enterprise aims at producing maximum profit for the owners; its
efficiency is reckoned by the ratio:

Profit
Capital
A cooperative is formed with the aim of providing services for its member economic as well as
non economic; its efficiency therefore is measured by the ratio:
Satisfaction of all kind
Total cost

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 The corporate objectives, organizational goals, decision process. Value structure and the
method of appraisal of cooperative management are in many respects unique. Each of the unique
elements is explained below;

Normative character: the principle of cooperation constitutes the vital ingredient and imperative
coordinates of the cooperative organization and management. These are a set of standards and
settled rules of action, which have universal application.

The proper application of cooperative principle is essential for the successes of the movement,
for the cooperative principles are those which are essential that is absolutely indispensable to the
achievement of cooperative movement’s role.

The cooperative management should strive to achieve maximum efficiency only within the
framework of the cooperative principle, and any rational action pursued should be compatible
with the principles, such a normative character of cooperative institutions imposes severe
constrains and rigidity on the cooperative management, which impede their competitive
efficiency. In order to overcome such constrains, the principles of cooperation have to be
integrated with the principles of management and a set of successful cooperative business
practices have to be evolved.

Complex aims system: in the cooperative organizational set up there are distinct interest groups
such as individuals members, cooperative group, the organization and the employees each
having a distinct aims system. The aims system is still more complex in respect of the
‘integrated type of cooperatives.’ In such integrated cooperatives the individuals member
economics, which are quite distinct from the cooperative enterprises, are organically linked with
the latter. The aims system of such a complex cooperative combine includes the following
diverse influence:

a. Personal individual aim system of every member

b. The corresponding individual operational objectives for the single member economy
c. The system of aims and operational objectives of the cooperative group
d. The operational objectives of the cooperative enterprises as such
e. Personal individual aims of the management
f. The aims of employees and workers
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 g. The influence of macro-policy on cooperative development
h. The influence of managers from secondary and tertiary bodies
i. Decision making process adopted within the cooperative enterprise

The aims of these distinct interest groups have to come together by formulating over all aims
system and evolving operable criteria for business decision making. The several aims system
linked together with one another make the operational objectives and decision making process
highly complex.

Superior value structure: a part from being an economic enterprise a cooperative society is an
ethical, social and moral entity as well. The cooperative ideology draws its moral and social
content from the reformist doctrine of Robert Owen, the father of cooperation, who advocated a
‘new moral world’ free from profit, competition and exploitation. Besides promoting materials
prosperity the cooperative movement aims at educational betterment, thrift and morals, honesty,
independence and self-respect, democracy, brotherhood. Thus, a cooperative society is both an
enterprise and an association. It is an economic organization set in a social framework. This dual
nature of cooperative system being at the same time an enterprise and an association calls for
entirely a different approach to the management process. It follows that the successful cooperative
management must involve both these aspects. It is the responsibility of cooperative management to
aim at success in both fields and to perform the management functions of planning, organizing, and
directing control in such a way that a fair balance between these two is achieved.

Distinct economic process: the economic process of transforming organizational objectives into
product and service specifications significantly differs in cooperatives as compared with other
forms of business. In cooperatives these is close linkage between the ownership, control and use. It
is a business organization in which the components of ownership control and use are integrated by
being all vested in one body of people, the members.

Furthermore, the production process also distinctly differs in cooperative enterprise from other
forms of business. Of the two basic pattern of organization of producer’s cooperative viz,
cooperative production society and cooperative service society, the second type has certain
uniqueness. “In one cooperative, members are workers and shareholders simultaneously. In the
other case, the members posses individual enterprises and delegate one or more functions to the
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cooperative establishment which thus becomes auxiliary in character.” In such societies the
cooperative management tasks becomes complex. Integration of member economies with the
cooperative enterprise objectives, planning and pursuing a common operative policy and appraisal
of the achievement by an appropriate feedback system thus becomes the crux of the cooperative
management.

Democratic control: The democracy is the corner stone of cooperative management. Though it is
an ideally suited form of management for ensuring member participation and motivation, it is best
with practical limitation. The cooperative managers need to involve more groups of people in the
decision process. Therefore cooperative manager has to develop methods and techniques to involve
large number of people without decreasing efficiency. Another handicap in the cooperative
management is that the board of directors of the cooperative quite often lacks proper perception of
their precise role. In such situations the role of the board becomes good and counter – productive.
The cooperative mangers have the onerous responsibility of educating the leaders in the
management decision making process and evolving methods to combine democratic control with
managerial efficiency. The success of cooperative management thus lies in making the democratic
control coincide with efficiency by synthesizing the principles of management of corporate
business and the goals of economic democracy and social ownership: and making the decision
process dynamic by a clear demarcation of the powers and functions of the chief- executive.

Harmony with Macro- policy of state: cooperative is an instrument of state policy and planning in
most of the developing countries, where the state forges a symbiotic relationship with cooperatives
by extending financial and administrative assistances and at the same time utilizing cooperative
infrastructure for achieving development targets. Perforce, this mutual process requires the
harmonization of the macro –policy of the cooperative groups. Such integration imposes certain
severe constraints on the management of cooperatives. Conflict between the objectives of member
groups and the macro objectives and the sacrifice of the former for the sake of latter is not
uncommon in cooperatives. The foregoing analysis highlights the need for developing a
management system appropriate to cooperatives by adjusting the management system to the
cooperative organizational situation rather than adjusting the cooperatives to sophisticated modern
management.

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 1.10 Cooperative management
1.10.1 Meaning and definition of cooperative management

Meaning: the principles of management and the principles of cooperation as seen from the
foregoing analysis have a complementary role. As aptly remarked by K.K. Taimni, “In fact they
converge to make the cooperative society as an ideal instrument to promote the values which a
democratic policy cherishes and at the same time they provide effective means to ameliorate the
lot of the vulnerable and weaker sections of the community. If cooperative principles given a
social content to the economic activities of an enterprise the principles of management make it
possible to put the resources of the enterprise to the best use.”

DEFINITION: By Watzlawick

“Cooperative management should be understood as a complex decision making process within

the three levels of management pyramid which aims at achieving a proper balance of success of
cooperative enterprise as a business unit as well as a social institution” can achieve equilibrium,
and development member- loyalty and greater patronage. The efficiency and viability of a
cooperative organization has no meaning unless it is able to coordinate the objectives of its
members and translate the individual objectives in to meaningful reality and make visible impact
on the people who from the organization.

Fourthly: cooperative organization must also strive for community acceptance by carrying out
the social responsibilities expected of it.

Fifthly: cooperative management must also aim at ethical and moral development of the
members. The objective of the cooperative organization is much more than improving the
material standards of its members. Ultimately it strives to lift them to higher social and moral
standards and enable them to realize higher spiritual potential.

Sixthly: to fulfill the above objective it must develop organizational and management
competence by professionalizing management and by taking up management development
programme. The task of cooperative management is therefore, to understand the basic concepts,
principles and techniques of management and systematically appraise their relevance in the

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context of their special goals and reconceptualize them so that training and development can be
organized effectively.

The system concept of management is more relevant to cooperative management. A cooperative

society should be understood as a sub- system of the larger socio-economic system. It draws
resources and inputs from the environment, transforms them into service and sends the goods
and services into the systems. There is constant interaction between the cooperative society and
the larger system to which it is a part. The system approach to cooperative management has four
basic ingredients. They are:

 A clear enunciation of the goals, which can be translated in terms of performance

measure
 A full recognition of the socio-economic and political environment external to the
cooperative system but having a bearing on the performance of the cooperatives
 Identification of the different components structure and their various attributes and
 An inventory of the human and material resources available to the cooperative system

LO2: Facilitate selection and organization of steering committee members

At the end of this learning outcome, the learners will be able to understand:
 Organizing cooperatives
o Meaning of organization
o Types of organization
o Establishing a cooperative society
o Steps in forming a cooperative society

2. Organizing cooperatives
2.1 Meaning of organization
Definition: A social unit of people that is structured and managed to meet a need or to pursue collective
goals. All organizations have a management structure that determines relationships between the different
activities and the members, and subdivided and assigns roles, responsibilities, and authority to carry out
different tasks. Organizations are open- systems they affect and are affected by their environment.

2.2 Types of organization

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 I. Formal organization
Definition: rules established by an organization to govern procedures and operations. These rules are
generally in writing and very specific, leaving little room for misunderstandings. Depending on the
individuals organization, these rules may be strictly adhered to or in some cases considered little more
than a formality that few follow.

A formal organization structure shows a recognizable chain of command, it also has many levels of
management. These make communication slower and decision making harder to implement.

II. Informal organization

Definition: Network of personal and social relationship (alliances, cliques, friendships) that arise as
people associated with other people in a work environment.

An informal structure is much more relaxed, with very few levels of management. This makes
communication much easier between levels and decisions are made faster. The informal organization,
often called the grapevine, is the informal working relationships that develop in organization and
contribute strongly to the work culture.

2.3 Establishment of cooperatives

2.3.1 Steps of organizing cooperatives
1. Hold an organizing meeting/ preliminary meeting/
A core group of interested individuals should hold an informational meeting of potential cooperative
members and others in the community. The primary purpose of the meeting is to explain the identified
need and how a cooperative would address it. It is important that the group come to general agreement
on the nature and importance of the problem and the potential for a cooperative to address it. Such an
agreement will become the group’s shared vision, so it is worth spending as much time as necessary to
achieve it.

2. Establishing steering committee

If sufficient interest in generated, a steering committee is selected from the group. Although these six to
eight individuals have no legal authority, they will be responsible for bringing the interests and concerns
of the group to outside parties and meeting with resource people. The steering committee meets
regularly and reports its activities and findings to the larger group. Leadership skills, sound business
judgment, and a desire to reach decisions are valuable qualities for committee members.

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Survey on potential members: under the guidance of the steering committee and resource persons,
potential cooperative members are surveyed. Topics include: need for services, volumes to be purchased
or marked, willingness to join, finance, and use of and familiarity with cooperatives.

3. Feasibility study of the business then report on the results

The steering committee can either conduct a feasibility study (using the guidelines provided), or hire a
consultant to carry out the study. The purpose of a feasibility study is to examine critical opportunities
and obstacles that might make or break the proposed cooperative business. The feasibility study should
give the group a good idea of whether the cooperative is likely to be successful as a business. The
critical issues that a feasibility study analyzes include the number and interest level of potential member;
market issues (can the cooperative get better prices, better quality or better services than potential
member currently get through other means?) operating costs; start –up costs; and availability of
financing.

The quality of the feasibility study is critical because it will influence all future decisions on the
development of the cooperative. Contributions by potential cooperative members are often used to help
cover the cost of a feasibility study.

These members will be the primary beneficiaries of the cooperative, so naturally they should assume
some responsibility for the financial costs of assessing its feasibility.

The steering committee should hold a follow up meeting with potential cooperative members to report
on the results of the feasibility study. A summary of the feasibility report should be distributed to
participants, and the full report made available to anyone who wishes to see it. The preliminary financial
projections should tell the group how much equity will be required from each member of the
cooperative, and whether or not the cooperative is projected to return any patronage refunds (shares of
the profits) to members during the first few years of operation. These are key pieces of information that
will influence each person’s decision about whether to join the cooperative. This should be a major
decision point. If the feasibility study indicates that the cooperative is not a viable business or if
sufficient commitment does not exist among the group, the steering committee should not proceed with
forming the cooperative

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4. Call the general meeting: to hear the results of feasibility study
5. Preparation of legal documents
I. Develop a business plan
If the feasibility study results are favorable, the steering committee carries out or hires a consultant firm
to develop a detailed business plan. The business plan serves two primary purposes: to provide a blue
print for the development and initial operation of the cooperative and to provide supporting
documentation for potential members, financial institution and other investors.
A typical outline of a business plan includes a description of the company, a market analysis, research
and development related to the cooperatives product or service, a marketing and sales plan,
capitalization supplied by members and loans, description of facilities and equipment and financial
business projections such as fixed and variable operating costs, sources of income and pro-forma
statements.
II. Develop by-law and other document
Under the guidance of professional advisors, the steering committee should draft legal documents for
approval by prospective members. These documents are: articles of incorporation; bylaws and other
legal documents. The articles of incorporation declare the cooperatives purpose, kind and scope. The
bylaws provide instruction on how the cooperative will conduct its declared purpose and must be
approved by the membership. Other legal documents such as membership applications and marketing
agreements, are necessary to meet a cooperatives special needs. The next thing would be incorporate the
association. In Nigeria, incorporation takes place when a cooperative files its articles with the corporate
Affairs commission. As soon as the cooperative is incorporated and thus exists as a legal entity, two or
three members of the steering committee should open a bank account in the cooperative name. this
account will be used to deposit equity contributions from new members.
Secure financing for the cooperative: cooperative businesses vary greatly in the amount of capital
they need to get up and running. The businesses plan should include the amount and type of financing
needed by the cooperative and a strategy for obtaining it. The steering committee and its advisors are
responsible for implementation this strategy.

Virtually all cooperatives require some level of member financing, usually in the form of stock
purchases or membership fees. Member financing not only provides equity for the cooperative, it also
provides a financial base that helps other investors, particularly banks, feel more secure in investing in

23
the cooperative. The steering committee should preparer’s membership application for new members to
fill out and sign. It should identify the members name, address, and phone number; the number of shares
of stock being purchased (or the amount of the membership fee if it is a nonostick cooperative); and a
stated agreement that the new member agrees to belong to and abide by the bylaws and contracts of the
cooperative. Each member’s initial financial contribution should be collected at the time the membership
application is submitted.

Recruit members for the cooperative: during their organizational phase, many cooperatives hold
meetings for potential members, conduct surveys and mail organizing updates to them, and collect initial
down payments on membership fees. All of these activities provide a good indication of the level of
interest in, and commitment to, the cooperative. Thus, when the time comes to actually “ante-up” and
join, potential members are more primed to act. Even so, the steering committee may need to recruit new
members in addition to those who have attended one or more of the organizational meetings. This
should be a major decision point. If the cooperative is unable to obtain the necessary debt financing or if
sufficient commitment does not exist among potential members to provide sufficient equity capital, the
steering committee should not proceed with developing the cooperative at this time.

6. Hold cooperative’s first membership/founders/ meetings: approve by-law, hire

management and staff
After financing has been secured and sufficient members have signed up, the first general membership
meeting is conveyed. There are two major pieces of business that must be conducted at this meeting: the
members adopt the cooperatives bylaws; and the members elect a board of directors for the cooperative.
This meeting marks the transition from a steering committee and interms leadership group to a formally
elected board and legally approved bylaws.
In their capacity as owners, members elect the board of directors to function as their representatives in
overseeing the administration of the cooperative. It is this mechanism through which a cooperative is
member- controlled. As the members representatives, the boards primary responsibilities are to develop
policies, conduct long-range planning hire and supervise the cooperative manager, and guide the
cooperative in pursuing its mission and goals.
Some new cooperatives identify management personnel early in their organizing process, especially if
members of the steering committee already know one or more key individuals. However, recruiting staff
personnel is listed as a later step in the cooperative formation process because the cooperative is not a
definite “go” until the necessary financing has been secured. One or more of the key individuals can be
hired as consultants at an early stages with the mutual intent that they will work for the cooperative once
24
it is formally established. This approach also has the effect of making investors feel more comfortable
about financing the cooperative because proposed management staffs have been identified. For some
lenders, competent management is the most important thing they look for in making a loan decision.

7. Call the first management committee meeting: to share powers each other and to do pre-condition
for cooperative registrations.
8. Application for registration: the management committee should apply for registration to the
appropriate authority by attaching the necessary documents for registration with their application. The
appropriate authority should announce to them whether they registered by fulfilling the requirement or
not within 15 days.
9. Start up the business: if they fulfill the registration requirements and registered, they will
immediately start their business. The directors must acquire the necessary facilities for business
operations. Actual operations may begin after all facility transactions are completed and the manager has
hired the needed complement of employees. It is important to note, however, that forming a cooperative
is not a guarantee for success. Cooperatives are subject to the same mark place demands and planning
requirements as any business, including careful market analysis; sound business planning; competent
management and adequate capital to start-up and grow. A good cooperative is the one, which is viable,
efficient, self-reliant and project- oriented. A cooperative must not only meet its members needs, but
also survive in the market place while doing so.
In nutshell, steps that should be followed to organize cooperatives are:
 Hold a preliminary meeting
 Formation of a steering committee
 Conduct of a feasibility study
 Hold a general meeting to hear results of the feasibility study
 Preparation of legal documents/ by-laws business plan and other documents
 Call a meeting of founder members
 Meeting of the management committee members
 Application for registration
 Start up the business

2.4 Self- check questions’

A. Describe briefly the term organization.
B. Write the difference between formal and informal organization.
C. Write the steps that should be followed to organize cooperative.
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 D. What does steering committee mean?
E. List some of the function of steering committee

LO3: Conduct General Meeting

At the end of this learning outcome, the learner will be able to understand;
 Meetings of cooperatives societies
 Types of cooperative societies meetings
 The responsible body to call cooperatives general meeting

3.1 Regular meeting of the general assembly

1. Any cooperative society shall convene its regular general assembly at least once in a year.
2. There should be a quorum where more than half members of the general assembly are present
3. Where there is no quorum of the general assembly called, the second general assembly shall be
called within 15 days as of the date of the first general assembly. Where there is no quorum for
general assembly called for the second time, the meeting shall be convened by members present.
4. The decision passed by the general assembly, which is convinced in a situation where there is no
quorum as is indicated in sub article 3 of this article, shall be deemed to have been made in the
presence of all members.

3.2 Emergency meeting of the General Assembly

1. Where there is no quorum in an emergency meeting called as per article 22 of the proclamation,
the management committees shall call the second emergency meeting within 15 days as of the
date of the first meeting. Where there is no quorum in emergency meeting called for the second
time, the appropriate authority may call another meeting.
2. There shall be quorum where two third of members of the general assembly are present.

Conditions to call the general meeting

The management committee shall make a call, as per the provisions of the proclamation. To call
members 15 days before the emergency meeting is convened through a News paper having notion wide
circulation or using any means found convenient.

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 Lo4: Facilitate cooperatives registration
At the end of this learning outcome the learners will be able to understand:

 Conditions that should be considered for cooperatives registration

 Basic accounting concepts
o Definition: book keeping & accounting
o Accounting documents and basic books of accounts
 Receipt & payment vouchers
 The journal/ the day book
 The ledger
4.1 Registration of a cooperative society
1. Any society shall be registered by the appropriate authority
2. Any society, when established shall submit an application for registration together with the
following particulars to the appropriate authority:
a. Minutes of the founders meeting
b. The by-laws of the society in three copies
c. Names, address and signature of the members
d. Name, address and signature of the members of the management committee of the society
e. A detailed description which proves that the registered members of the society have met the
requirements for membership in accordance with the provisions of this proclamation and the by-
laws of the society.
f. Name, address and signature of members of the societies above primarily level:
g. Plan of the society
h. Documents showing that the amount of capital of the society and the capital has been collected
and deposited in a bank account, if there is no bank in the area, that it has been deposited in a
place where the appropriate authority has designated
i. The description of the land on which the society operates
j. Other particulars that may be specified in the regulations or directives issued for the
implementation of this proclamation.
3. The appropriate authority shall register a society and issue a certificate of registration within 15 days
when it is satisfied that the application for registration submitted to it has fulfilled the requirements
for registration.

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4. When the appropriate authority rejects application for the registration of a society, it shall give a
written explanation to the representatives of the society within 15 days. The representatives may
appeal to the high court which has jurisdiction on the decision of the appropriate authority.
5. The certificate of registration issued to a society pursuant to sub article (3) of this article is an
evidence to prove that a society is registered in accordance with this proclamation.

4.2 Basic accounting concepts

4.2.1 Definition and relationship between accounting and book keeping

Definition of accounting: accounting is process of interpreting, recording, summarizing and reporting

financial information to decision makers. Thus, the purpose of accounting to help decision –makers to
make informed judgments and decisions. If accounting information is not capable of helping to make
better decision, then it is waste of time and money to produce.

Accounting is often called the “language of business” an information systems that provides essential
information about the financial activities of an entity to various individuals or groups for their use in
making informed judgments and decisions.

Book keeping: is the process of recording and classifying business financial transactions or put it
another way, the process of maintaining the records of a business financial activities. The objective of
book keeping is to create useable summary of financial transactions, which provides a snap shot of the
business financial stability.

Book keeping and accounting

Book-keeping and accounting are often used interchangeably. Book keeping is the art of recording
business transactions in a systematic manner so as to provide information that will aid the owner in
operating his business. If we compare this definition with that of accountancy, we hardly find any
significant difference between the two. But in the broader sense, these two terms are not identical. The
work of book-keeping is generally performed by junior employees who are responsible to maintain
various kinds of books of original records. But from the books of original records one cannot get
information about the financial position of an enterprise, the books of original records have to be
analyzed and interpreted. And from here the function of accounting beings. Thus accounting starts
where book keeping ends. In case of smaller cooperatives both book-keeping and accounting are
combined. The persons doing the work of book-keeping are also entrusted with the work of
interpretation and analysis.

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 4.2.2 Accounting documents and basic books of accounts

The flow of accounting data from the time a transaction occurs to its recording in the ledger may be
diagramed as follow;

Business Business Entry Recorded Entry

TRANSACTIONS DOCUMENT
In JOURNAL Posted to
Occurs Prepared LEDGER

 The initial record of each transaction, or of a group of similar transactions, is evidenced by a

business document; such as sales ticket, a bill, cash register tape. On the basis of the evidence
provided by the business documents, the transactions are entered in chronological order in a
journal.
 The amounts of the debits and the credits in the journal are then transferred to the accounts in a
ledger. This process of transferring the amounts of the debits and credits from the journal to the
accounts in the ledger is known as posting.

The Journal/ the day Book

Journal records all the daily transactions of a business in to the order in which they occur. A journal may
be defined as; “as a book containing a chronological record of transactions”. It is the book in which the
transactions are recorded first of all under the double entry system. Thus journal is the book, of original
record. A journal does not replace but precedes the ledger. The process of recording transaction in a
journal is termed as ‘journalizing.

Illustration:

1. Ram starts a business with a capital of amount 20,000 on January 1, 1990. In this case there are two
accounts involved. They are
i. The account of ram
ii. Cash account

Ram is natural person and, therefore, his account is a personal account cash account is a tangible asset
and therefore, it is a real account. As per the rules of debit and credit, applicable to personal accounts,
ram is the giver and therefore, his account i.e. capital account should be credited. Cash is coming in the

29
business and therefore as per the rules applicable to real account, it should be debited. The transaction is
now be entered in the journal as follows

Date
Particulars Edger Debit Credit
(Amount) (amount)
Olio
990
Cash Account 20,000
An.1 Dr. 20,000
To capital Account
(being commencement of
business)

The words put within brackets “being commencement of business” constitute the narration for the entry
passed, since, they narrate the transaction

2. He purchased furniture for cash amount 5,000 on January 5, 1990. This transaction will be recorded
in the following manner

Date Particulars Edger Debit Credit

(Amount) (amount)
Olio
990
Furniture Account 20,000
an.5 Dr. 20,000
To Cash Account
(Being purchased furniture)

In the above transaction it gives two accounts, one is furniture account and another one cash account.
These both are real accounts. Furniture is coming to the company and therefore, it should be debited.
The cash is going out from the company and therefore, it should be credited.

30
3. He paid rent for business premises amount 2000 on January 10, 1990 in this transaction two
accounts are involved, one is real account and the other is cash account. Rent account is nominal
account, it is an expense and therefore, it should be debited. Cash account is a real account, it is
going out of the business and therefore, cash account should be credited.

Date Particulars Edger Debit Credit

(Amount) (amount)
Olio
990
Rent Account 2,000
an.10 Dr. 2,000
To Cash Account
(Being payment of rent)

4. He purchased goods amount 2,000 on credit from Suresh on January 20, 1990. The two accounts
involved in the transaction are those of Suresh and goods. The accounts of Suresh is personal
account while that of goods is a real account. Suresh is the giver of goods and therefore, his account
should be credited, while goods are coming to the business and therefore, goods account should be
debited.

Date Particulars Edger Debit Credit

(Amount) (amount)
Olio
990
Goods Account 2,000
an.20 Dr. 2,000
To Suresh Account
(Being purchased goods on
credit)

I. Journalize the following transactions and record in a journal entry systematically (classroom work)
1. December 1, 1990 Alem started business with amount 40,000 birr.
2. December 3, he paid in to the bank amount 2,000 birr
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 3. December 5, he purchased goods for cash amount 15,000 birr.
4. December 8, he sold goods for cash amount 6,000 birr
5. December 10, he purchased furniture and paid by cheque amount 5,000 birr.
6. December 12, he sold goods to Bekele amount 4,000 birr.
7. December 14, he purchased goods from Martha amount 10,000 birr
8. December 15, he returned goods to Abebe amount 5000 birr
9. December 20, he withdrawn cash from business for personal use 2,000 birr
10. December 21, he withdrawn goods for personal use amount 1,000 birr
11. December 24, he paid telephone charges amount 1,000 birr
12. December 26, he paid stationary amount 200 bir
13. December 31, he paid rent amount 1,000 br; paid salary 25,000 birr

II. Enter the following transactions in a journal entry (Classroom work)

1. January 1, 2000 Haile commenced business with amount 50,000bir
2. January 5, Purchased goods worth 5,000 Br cash less 20% trade discount
3. January 6, purchased goods from Girma amount 5,000 birr
4. January 10, sold goods to Helen on credit amount 600br
5. January 18, sold goods to Ram for cash amount 1,000 bir
6. January 20, paid salary to Ayele amount 2,000 Br
7. January 31, withdrawn goods for personal use amount 200 Br.

Daybook
Daybook is the only book of original entry under cooperative account keeping system. The transactions
taken place in a cooperative society are recorded then and there in this book. It is one of the very
important account books to be maintained by all the cooperatives as per statutory requirement. This
daybook is often called ‘cashbook’ in cooperatives in bigger cooperatives if the transactions are more
they may have separate cashbook. The daybook normally has two sides, one is receipt side and the other
one is payment side. So the transactions, receipt and payment are recorded in the appropriate side or
column of the daybook.

Kind of day book

Depending upon the volume of transactions taken place in a cooperative society, two different kinds of
daybooks are used in practice, they are
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 1. Simple daybook with receipts and payments column only
2. Columnar daybook with cash, adjustment and total columns

The daybook with receipts and payments columns only is known as simple daybook. And the daybook
with cash, adjustment and total column is called as columnar daybook or triple column daybook. The
simple daybook maybe maintained in two different ways. They are using single page of with two
columns one for receipt and another for payment of the transactions. The other way is using two pages
with receipt and payment sides.

Date Details Receipts (Birr) Payments (Birr)

January 7 Opening balance
Share capital 250
Travelling expense 15
Total 350 15
Balance 350-15 = 335

Columnar Cashbook
Comparatively bigger co-operatives like primary agricultural service cooperative societies, primary land
development banks, farmers service cooperative societies, cooperative banks, and other state and
national level cooperatives are using the columnar cashbook. Since the volumes of transactions involved
with them are very large in number, different columns are used in this cashbook. It facilitates their
proper classified recording. Also it avoids duplication and misplacement of entries. A classified
system or procedure is followed in writing this cashbook.

The columnar daybook will be written on two pages or sides with receipts and payments
(disbursements) the left hand side is called receipt and payments side. On both sides apart from columns
for date, particulars R, NO, Vr, NO and L, I, their amount columns are drawn for cash, adjustment and
total. All cash transactions are entered on the cash column and transactions other than that are credit,
banking, bill, appropriation and the totals of cash and adjustment columns of a particular head are
entered in the total column (specimen 4). The detailed treatment of different transactions and different
forms of cashbooks are mentioned separately.

Purpose of using different columns

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The purposes for which the columns used for different transactions are to be understood to make ones
work easy to write the columnar daybook.

Cash column
It is meant for cash transactions only and it involves actual involvement of cash either receipt or
payment. The amount should be entered in the cash column of receipt side or payment side depending
up on its nature.

Adjustment column
Other than cash transactions such as receipt or payment through cheques, credit transactions overing
credit purchases and credit sales, contributions by the society towards employees provident fund,
settlement of adjustment accounts already opened book adjustment and similar transactions which do
not involved in the transactions should be entered in the adjustment columns show the same total and
imbalance will check the misplacement of transactions as well as the amount.

Total column
This column is used to enter the total amounts covering cash and adjustment transactions of every head
of account. For instance, if there is both cash and credit sales, the total of both should be entered in the
total column under sales account. Similarly, all the amounts entered in the adjustment column of the
total column of the same account. If there is only cash transaction, the same amount is to be entered in
the total column. The advantage of having the total column is, any mistake in the total will be found out
immediately, because the grand totals of cash and adjustment columns together form the total of the
column. Hence the detection is very easy.

Transactions involved in cooperative business

Like any other business organizations all the transactions like place in a cooperative also can be broadly
classified into cash, credit, bank, bill, consignment, and adjustment, appropriation and rectifications are
taken place only in consumer cooperatives and marketing cooperatives and all other transactions are
common to all types of cooperatives. The treatment of transactions of each type and method of recording
such transactions are as follows.

Treatment of transactions in triple column cashbook or columnar cashbook

1. Cash transactions
All cash transactions involve either receipt or payment of money for the value of goods or services
rendered as such in the cash transactions, the amounts should be entered in the column of the daybook
34
either on the receipt or payments side. Appropriate head of accounts should be opened and information
or particulars should be given as follows:

Receipt column
If a society receives cash, it should be entered in the cash column of the receipt side. For example cash
sales, share capital collected from members. Loans from central cooperatives bank, etc. if it is cash sale
of textiles, sales account should be open and under the sales account textiles, sales account should be
open and under the sales account textiles should be written. The amount should be entered in the cash
column.

Cash payment
If a society pays cash for any purpose the amount should be entered in the cash column of the payment
side. For example loans issued, salary paid, share capital refunded etc. if it is salary paid to the secretary,
salary account should be opened, the detail of payment to the secretary be written below; and the amount
to be entered in the cash column.

2. Credit Transactions
Credit transactions will be split in to two and entered on both sides of cashbook in the adjustment
columns. For example purchase of fertilizer from marketing society on credit. This transactions will be
viewed as though the society borrowed money from marketing society and hence should be entered on
the receipt side under the heading marketing society with details saying credit purchase of fertilizers and
on the payment side under the heading called purchases with same details (as though the society bought
for cash).

Similarly any credit sales will be entered on both sides on the receipt side under sales and on the
payment side under the heading members loan account.

3. Bank transactions
It covers the receipt and payment of money by cheques. Regarding payment of cheques, it should be
treated as; the society withdrew money from the bank and paid to the supplier or party. For receipt of
cheques the treatment is the society receives the money and remits the same into the bank. Since these
35
transactions do not involve actual cash it should be entered in the adjustment columns on both the sides.
As much, the receipt of money by cheques from members account on the receipt side and bank account
on the payment side; and for payment by cheques to the suppliers, bank account on the receipt side
suppliers account or sundry creditors account should be opened and the details should be entered below
the accounts.

4. Suspense accounts/transactions
Any amount received or paid by a society in an earlier date the original receipt or voucher may be made
at a later date should be kept under an account called suspense account or adjustment account. Broadly
these transactions are brought under two heads that is, adjusting heads due to or adjusting heads due by
(Suspense due to or due by) transactions like advances to staff workers, suppliers and president and
other directors, repayment of loan amount to financing banks, suspense assets etc are brought under
‘suspense due to’ and receiving amount from individuals in anticipation of his admission (member to be
admitted) in the society, suspense liability, share suspense, suppliers account and similar items are
brought under ‘suspense due by’ the adjusting head is also known as suspense, hence suspense due to
and suspense due by and also the sundry debtors and sundry creditors. The head of accounts vary
between cooperatives on the basis of the nature of business.

Advantages of columnar daybook

Since the columnar daybook records the transactions every day in a classified and consolidated manner.
1. It is often much useful to bigger cooperatives
2. It minimizes clerical work while posting each transaction from the cashbook to the general ledger.
3. Since cash transactions are entered separately,
4. Credit transactions are entered separately and the verification about credit purchase and sales can be
extracted clearly.
5. The book transactions and all other adjustment items, which do not involve spot payment, are also
entered separately. Hence their verification and accuracy are ensured.
6. All the adjustment items, that is credit, banking entries are entered on the both sides, that is receipt
and payment the total of adjustment column ensures its correctness.
7. From the total columns of the daybooks, which reveals the total of each transactions, both cash and
credit or bank transactions can be drawn for a day.

From the following transactions record the entries in a simple daybook

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 January 2, 2005 (Illustration 1)
1. Balance brought forward amount 100 Birr
2. Received share capital amount 50 Birr and entrance fee amount 10 birr from Negash.
3. Received short term loan from central cooperative bank (CCB) amount 10,000 Birr
4. Traveling allowance paid to the accountant for going to CCB amount 10 birr
5. Short-term loan issued to members Ato Girma amount 1000 birr and Alem amount 2000 birr
6. Stationary brought for office use amount 500 birr.

Solution (simple day book)

Date Details R. Vr L.F Receipts Payments
No No (Birr) (Birr)
Jan.2 Opening balances 100
Share capital A/C 50
(Received from Ato Negahs)
Entrance fee A/C 10
(Received from Ato Negash)
Central cooperative bank A/C 10,000
(Short term loan received)
Travelling expenses A/C 10
(Going to CCB)
Members loan A/C 3000
(Short term loan issued to Alem and Girma)
Stationery A/C 500
(for office use)
Total 10,160 3,510
Balance 6,650
Accountant’s Signature Manager’s signature president signature
--------------------------- ---------------------------- -------------------------

Illustration II (Classroom work)

Inter the following transactions in a columnar daybook
Date
February 1st, 2005
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 1. Opening balance amount 6650 birr
2. Received share capital amount 200 birr and entrance fee amount 10 birr
3. Amount remitted to CCB towards loan repayment amount 8500birr
4. Ato Kasaye applied for membership and paid amount 5000 birr
5. Received MT loan from the CCB amount 5000.
6. ST loan issued to the following members
a. Ato Eshetu 1000 birr
b. Ato Andinet 1500 birr
c. Ato Gemechis 500 birr
7. Refund of share capital amount 50 birr to Seblewongel
8. Stationary purchased for office use amount 300 birr

Illustration III: Prepare the columnar daybook (Class work)

Date
March 1st 2005
1. Opening balance amount 5000 birr
2. Cash sales amount 7000 birr
3. Credit sales to members amount 5000 birr
4. Purchased food items from Eshetu & Co amount 8000 birr
5. Received amount 110 from Seblewongel for membership and entrance fee respectively (applied
for membership)
6. Loan recovered from members
a. Ato Eshetu 500 birr
b. Ato Andinet 500 birr
c. Ato Gemechis 200 birr
7. Goods sold amount 500 birr

From the following transactions prepare a columnar daybook in a agricultural cooperative society
(Homework)
Date: March 1, 2005
1. Opening balance, amount 65,000br
2. Received additional share capital from Mr R, amount 200 Br
3. Mr. X applied for membership along with amount 210Br
4. Purchased food items from the consumer coop. store amount 25,000 Br
5. Amount remitted into central coop. Bannk Br 17,000

March 10, 2005

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1. The Board has accepted Mr, X’s application and allotted two shares each value 100 Br and entrance
fee 10 Br.
2. The CCB has sent the remittance details in the following manner
a. Principal amount 15,000 Br
b. Interest 2000 Br
3. Goods sold to members
a. Mr. M 5,000 Br
b. Mr, C 2,000 Br
c. Mr D, 1000 Br
4. Loans issued to the following members
a. Ato Girma 5000 Br
b. Ato Daniel 2000 Br
c. Ato Mustafa 3000 Br

March 28, 2005

1. The following members are refunded their loans
a. Mr. N 2,200 Br
b. Mr. M 1,500 Br
c. Mr. K. 800 Br

Ledger (Cooperative accounting)

Ledger may be defined as ‘a book of main entry where the transactions of a business or institution are
classified, summarized and balanced and which contains one type of accounts namely personal. Real and
nominal accounts ledger is the chief book of accounts, which incorporate all the transactions taken place
in a year. The transactions entered in the cash book (day book) are posted daily in a classified form and
it is totaled every month. It is important to note that recording the transactions from daybook into a
ledger is the final stage of accounting system. Hence it is called as a book of final entry. So a ledger can
also be called as a classified and consolidated summary of daybook. It is clear that a ledger is a book of
accounts and a classified and consolidated summary of daybook.

Objectives of general ledger

The objectives of maintaining a ledger in cooperatives are;
1. To maintain a systematic account keeping
2. To have a classified and consolidated picture of a cooperative society for a particular period

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Types of ledger
In cooperatives a ledger would mean automatically general ledger. From this ledger one can draw the
information into two. However, exact detail of accounts of the members, customers, borrowers,
suppliers etc cannot be availed from this ledger. So it is imperative to maintain certain special books or
ledgers. Such ledgers are known as special ledgers. As such, the cooperatives maintain two types of
ledger namely.

1. General ledger
2. Special ledgers or subsidiary ledgers

1. General ledger
The general ledger contains all the accounts entered in a daybook in a classified and consolidated form.
The board heads of accounts normally taken place in a general ledger are share capital entrance fee,
loans to members, credit sales, recovery of loans rent, interest, adjusting heads, due to and due by, bank
etc. however, this ledger does not cover the cash account which will be found in the cash book. It
facilitates the preparation of the statement of receipts and disbursement.

2. Special ledger
The accounts which require more details are recorded in special ledgers. Such ledgers are more personal
in nature. The special ledgers which are commonly used in all types of cooperatives are;

1. Admission book
2. Loan ledger/ debtors ledger
3. Ledger of borrowing/ creditor ledger
4. Dividend register

In the case of commercial cooperatives, especially in consumer cooperatives the special ledgers are
maintained even for every item of goods. Such transactions give the details of receipt, payment and
balance of the particular account. It is important to note that, their consolidated picture can be seen from
the general ledger. But the special ledgers are maintained to extract and provide the details of that
particular account. The special ledgers are not separated from the general ledger. A ledger in a
cooperative has three columns namely receipts payments and balance. The amount for an account
entered in the day book is posted in the ledger under that particular account. If an item is entered on the
receipts side of the general ledger in the same headings. The same producer is to be adopted for payment
also. At the end of a month the progressive totals of receipts and payments will be arrived.

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 4.3 Self-check question
Illustration: from the following transactions prepare a daybook and ledger
Date: 1.03, 05
1. Opening balance amount 10,000 Birr
2. Received share capital of amount 300 Birr from Negash
3. Received S.T Loan amount 10,000 from the CCB
4. Travelling allowance paid to the secretary for going to CCB amount 100 Birr
5. S.T Loan issued to members: Abragam amount 4000, Alem amount 6000
6. Stationary brought for office use amount 500 birr

Date 18.03.05
1. Share capital refunded to Girma amount 500 Birr
2. The following members repaid their loans: Ermis 1000, Eshetu 2000 and Alem 500 Birr
3. Amount remitted to CCB towards loan repayment amount 13,500 birr
4. Travelling allowance paid amount 100 birr to the secretary to go to CCB for remittance the loan
amount

Date; 25.03.05
1. A final receipt was received from the CCb for the amount paid on 18.03.05 with the following
details; amount adjusted to principal 12,000, interest 1500 Birr.
2. Mr. Kalam applied for membership and paid amount 110 Birr

31.03.05
1. The committee of management decided to admit Mr Kalam as a member and allotted one share
2. Purchased fertilizer from the marketing Federation amount 10,000 Birr.

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