• 1 Chart of Accounts
• 1.1 Default Chart of Accounts
• 1.2 GL Code Changes
• 2 Debit/Credit Financial Transaction
• 2.1 Posting rules
• 2.2 Clients/groups/centers- Transaction entries
• 2.3 Loan accounts- Transaction entries
• 2.4 Savings accounts- Transaction entries
• 2.5 Rounding- 999 account
• 3 Currency and rounding rules
• 4 Merging of Subcategories - Out of Scope for release 1
• 5 Sources of funds
• 6 Out of Scope for version 1

The objective of this section is to detail out the accounting needs for different areas in the Mifos system. The section first describes the Chart of Accounts following which the entries for each entity are defined.

See also: Microfinance Accounting Issues

Chart of Accounts

Chart of accounts (CoA) is a list of accounts in the general ledger, systematically classified by title and number. The account number is referred as GL code. The appropriate financial transactions will be posted against these GL codes. In version 1.0, the CoA was defined/modified at the database level. For version 1.1, the configuration has been moved to XML. All offices under the HO will use the same CoA. The list of accounts is categorized into the following general ledger categories:

• Assets
• Liabilities
• Income
• Expenditure

The default CoA is given below. The COA supported by Mifos system will have 4 levels.

• The first level is called the category, namely, ASSETS, LIABILITIES, INCOME and EXPENDITURE. These categories cannot be removed or modified and new categories cannot be added.
• Category is followed by subcategories
• The system will allow user to rename the description of default subcategories
• Subcategories can be added to the CoA within the approved structure (i.e. the one defined below). The updates, if any, should be reflected in the respective acceptable GL Codes list for different entities. For example, if a GL Code for interest has been added in CoA, when creating a loan product, the drop down box for the Interest GL code would be populated with options from the CoA.

Default Chart of Accounts

The following is the CoA that Mifos will support and ship with in the configuration file.

Please review the information below very carefully.

• Required general ledger accounts are in BOLD. Required means Mifos depends on their existence at the specified location in the hierarchy, but GL code and account name can be modified.
• Subcategories may be added underneath any GL account. Follow this procedure to do so. Once a GL account is added and Mifos is started, only the name may be changed.
• GL codes and names may be alphanumeric.
• You may remove any subcategory, but financial action mappings must exist as specified here.
  
• You may change the name of any general ledger subcategory, but we recommend following standard accounting practices.

10000 -- ASSETS
    11000 -- Cash and bank balances
        11100 -- Petty Cash Accounts
            11101 -- Cash 1
            11102 -- Cash 2
        11200 -- Bank Balances
            11201 -- Bank Account 1
            11202 -- Bank Account 2
    13000 -- Loan Portfolio
        13100 -- Loans and Advances

            13101 -- Loans to clients
            13102 -- Emergency Loans
            13103 -- Special Loans
        13200 -- Loan Loss Provisions
            13201 -- Write-offs
20000 -- LIABILITIES
    22000 -- Interest Payable
        22100 -- Interest payable on clients savings
            22101 -- Interest on mandatory savings
    23000 -- Clients Deposits
        23100 -- Clients Deposits
            23101 -- Savings product 1
            23102 -- Savings product 2
    24000 -- Mandatory Savings
        24100 -- Mandatory Savings
            24101 -- Mandatory Savings Accounts
30000 -- INCOME
    31000 -- Direct Income
        31100 -- Interest income from loans
            31101 -- Interest on loans
            31102 -- Penalty
        31300 -- Income from micro credit & lending activities
            31301 -- Fees
            31302 -- Processing Fees
            31303  -- Annual Subscription Fee
    31401 -- Income from 999 Account
40000 -- EXPENDITURE
    41000 -- Direct Expenditure
        41100 -- Cost of Funds
            41101 -- Interest on clients voluntary savings
            41102 -- Interest on clients mandatory savings

GL Code Changes

• User may not edit a GL Code post- installation. The CoA is set once in Mifos, at implementation time and thereafter, the existing GL Codes should not be edited/deleted. However, new GL Codes can be added under defined subcategories.

Debit/Credit Financial Transaction

• Mifos system is required to make the debit/credit entries when a transaction is made.
• The debit/credit entries will be made in "transactions table"
• The entries should be made against the lowest level GL Code under a category. For example, a fee transaction will be:
  • Dr 31303 (loan fees)
  • Cr 11201 (bank account)
• Example of complete financial transaction- If a loan payment of Rs. 1000 is received (by cash) for installment 3 on Jan 1st, 2006 and a user with username mariea records it in the system on Jan 3rd, 2006, system will make the following entries in transaction table:

Posting rules

While making the accounting/financial entries, the following rules should be used for the signs: The CoA is divided into 4 categories- ASSETS, LIABILITIES, INCOME and EXPENDITURE. The sign of the entry depends on the whether it's a Dr or a Cr AND under which category it is being recorded. The category is mentioned in parenthesis for each accounting entry. Note- The sign should not be displayed on the front-end.

Assets and Expenditure

• Dr- Increase
• Cr- Decrease

Liabilities and Income

• Dr- Decrease
• Cr- Increase

Events that require a debit/credit entry are listed below

Clients/groups/centers- Transaction entries

6. Fee is received from client/group/center

• DR Cash (Assets) 11201
• CR Fees (Income) 31301 (exact GL Code to be picked from fee definition)

7. Misc fee is received from client/group/center

• DR Cash (Assets) 11201
• CR Fees (Income) 31301

8. Misc penalty is received from client/group/center

• DR Cash (Assets) 11201
• CR Penalty (Income) 31102

9. Adjustment in client/group/center accounts- when the last received amount is nullified. The last payment has to be broken down in the components and separate DR/CR entries should be made for each one of them.

• Fee /Misc fee nullified
  
• DR Fees (Income) 31301 (exact GL Code to be picked from fee definition)
  
• CR Cash (Assets) 11201
  
• Misc Penalty nullified
• DR Penalty (Income) 31102
  
• CR Cash (Assets) 11201

Loan accounts- Transaction entries

10. Loan is disbursed

• DR clients loan (Assets) 13101 (exact GL Code to be picked from product definition)
• CR Cash (Assets) 11201

11. Principal installment received

• DR Cash (Assets) 11201
• CR clients loan (Assets) 13101 (exact GL Code to be picked from product definition)

12. Interest installment received

• DR Cash (Assets) 11201
• CR Interest on Loan (Income) 31101 (exact GL Code to be picked from product definition)

13. Fee charged is received

• DR Cash (Assets) 11201
• CR Fees (Income) 31301 (exact GL Code to be picked from fee definition)

14. Penalty charged is received

• DR Cash (Assets) 11201
• CR Penalty (Income) 31102

15. Misc fee charged is received

• DR Cash (Assets) 11201
• CR Penalty (Income) 31102

16. Misc penalty charged is received

• DR Cash (Assets) 11201
• CR Penalty (Income) 31102

17. Adjustment- last payment is nullified The last payment has to be broken down in the components and separate DR/CR entries should be made for each one of them.

• Principal nullified
  • DR clients loan (Assets) 13101 (exact GL Code to be picked from product definition)
  • CR Cash (Assets) 11201
• Interest nullified
  • DR Interest on Loan (Income) 31101 (exact GL Code to be picked from product definition)
  • CR Cash (Assets) 11201
• Fee nullified
  • DR Fees (Income) 31301 (exact GL Code to be picked from fee definition)
  • CR Cash (Assets) 11201
• Penalty nullified
  • DR Penalty (Income) 31102
  • CR Cash (Assets) 11201

18. Loan account is moved to "Closed- Written off" state

• DR Loan loss provision (58100 or 58102) X Amount
• CR Clients Loan (13101 or 13102, etc) X Amount

Savings accounts- Transaction entries

19. Deposit is made in voluntary/mandatory savings account

• DR Cash (Assets) 11201
• CR Savings Accounts (Liabilities) 23101 (exact GL Code to be picked from product definition)

20. Withdrawal is made in voluntary/mandatory savings account

• DR Savings Accounts (Liabilities) 23101
• CR Cash (Assets) 11201

21. Interest is posted to the account

• DR Interest Payable - Mandatory/Voluntary Savings (Expenditure) 41101/41102 (exact GL Code to be picked from product definition)
• CR Mandatory Savings Accounts (Liabilities) 24101 (exact GL Code to be picked from product definition)

22. Adjustment- Voluntary/Mandatory- last deposit is nullified/decreased/increased A reverse entry of the original transaction should be made. Also, a fresh entry with the new deposit amount should be made.

23. Adjustment- Voluntary/Mandatory-last withdrawal is nullified/decreased/increased. A reverse entry of the original transaction should be made. Also, a fresh entry with the new withdrawal amount should be made.

24. Adjustment- Account balance- is reduced

• DR Mandatory Savings Accounts (Liabilities) 24101 (exact GL Code to be picked from product definition)
• CR Cash (Assets) 11201

25. Adjustment- Account balance- is increased

• DR Cash (Assets) 11201
• CR Mandatory Savings Accounts (Liabilities) 24101 (exact GL Code to be picked from product definition)

26. Adjustment- Interest earned- is reduced

• DR Mandatory Savings Accounts (Liabilities) 24101 (exact GL Code to be picked from product definition)
• CR Interest Payable - Mandatory/Voluntary Savings (Expenditure) 41101/41102 (exact GL Code to be picked from product definition)

27. Adjustment- Interest earned- is increased

• DR Interest Payable - Mandatory/Voluntary Savings (Expenditure) 41101/41102 (exact GL Code to be picked from product definition)
• CR Mandatory Savings Accounts (Liabilities) 24101 (exact GL Code to be picked from product definition)

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 Rounding- 999 account

• Amounts entered in the system should be stored as per the decimal precision specified by MFI.
• Amounts should be rounded only in certain scenarios as described below.
• Loan- Disbursal amounts should not be rounded.
• Loan repayments-
  • The repayment amount for each installment should be calculated based on the instance rules.
  • If the total of principal, interest, fee and penalty is not rounded, system should round the total as per the rounding rules. Then the principal amount should be adjusted so that total = sum of principal, interest, fee and penalty.
  • The extra/less principal paid in all the installments should then be adjusted in the principal amount of the last installment.
  • The total of last installment should be rounded during actual payment and the excess/deficit should be logged as the 999 account entry given below:
  • Example, if each installment total is 50.5, which after rounding becomes 50, the 0.5 from each installment should be increased in the last installment. The last installment should be adjusted for each installments rounding.

28. When the rounding of loan repayment increases 999 account balance

• DR client's loan (Assets) 13101 (exact GL Code to be picked from product definition)
• CR 999 Account (Income) 31401

29. When the rounding of payment decreases 999 account balance

• DR 999 Account (Income) 31401
• CR client's loan (Assets) 13101 (exact GL Code to be picked from product definition)
• Savings- Rounding is not required for deposits and withdrawals as these are user entered values. Assumption being, that the user will enter only a physically exchangeable amount.
• Savings- Rounding is not required when interest is posted to savings accounts.
• Savings- rounding is required when a savings account is being closed and the total balance is not a rounded amount. In this case, a withdrawal entry for the rounded amount should be made. In addition, following 999 account entry should be made to adjust the excess/deficit balance:

30. When the withdrawal in savings increases 999 account balance

• DR Mandatory Savings account (Liabilities) 24101
• CR 999 Account (Income) 31401

31. When the withdrawal in savings decreases 999 account balance

• DR 999 Account (Income) 31401
• CR Mandatory Savings account (Liabilities) 24101

Example:

Payment of $100 for loan repayment is received by the MFI. This payment includes payment for principal ($60), interest ($25), fee ($10) and penalty ($5). Following transaction entries should be made:

• DR Cash (Assets) 11201; amount 60
• CR client's loan (Assets) 13101; amount 60

• DR Cash (Assets) 11201; amount 25
• CR Interest on Loan (Income) 31101; amount 25

• DR Cash (Assets) 11201; amount 10
• CR Fees (Income) 31301; amount 10

• DR Cash (Assets) 11201; amount 5
• CR Penalty (Income) 31102; amount 5

Currency and rounding rules

The system will support a single currency for an MFI and its offices.

MifOS will round currency amounts, either entered or calculated, to the precision specified by the application configuration setting AccountingRules.DigitsAfterDecimal. The method of rounding is specified by the application configuration setting AccountingRules.CurrencyRoundingMode, which can be set to HALF_UP, FLOOR, or CEILING.

The following table illustrates how the currency amount 42.4815 is rounded for different combinations of DigitsAfterDecimal and CurrencyRoundingMode:

MifOS can apply additional rounding rules in other scenarios, such as when it creates a loan repayment schedule. For example, the amounts to be repaid each installment can be further rounded to the nearest whole unit of currency while accounting for roundoff errors. See "Rounding rules for loan repayment schedules" for more information.

Merging of Sub-categories - Out of Scope for release 1

System will handle merging of subcategories as long as the functionality ID of the category is not modified. Guidelines on merging will be included in the installation document. For example, for the above CoA, following merging will be supported:

Sources of funds

Funds are donations or grants provided to the MFI specified purpose. Such funds remain even when the specified purpose is achieved and accomplished since they would be accounted for as sources of funding which remain in equity.

Fund Creation

Sources of funds can be managed (created and modified) at the HO and other offices will inherit the details of these funds.

Attributes for Funds 

The defined funds will be associated with loan product instances through loan product definition. When a new fund is created or an existing fund is modified, the additions/modifications should be reflected in the list of funds in each loan product instance

Default Source of Funds

The product will be shipped with the following source of funds:

Out of Scope for version 1

• Change logs for funds
• "Status" attribute for funds- Funds cannot be made active/inactive.
• A fund cannot be deleted. However, a fund can be removed from a product so it can't be used for new accounts.
• Deletion of funds
• "Start and end dates" for funds
• Front end for CoA
• Status field for GL Codes
• Importing/Exporting of CoA
• Deleting of a GL Code
• Adjustments- GL Codes
• Insurance
• Programs
• Following entries in Chart of Accounts
  • Deposits for short term investments
  • Interest receivable- other interest receivable
  • Inter entity/project donor/HO/branch balances
  • Other assets
  • Investments- long term
  • Fixed assets
  • Liabilities- accrued expenses and payables; loans payable- short term; loans payable- long term; grants from donors; reserves; unearned interest on loans
  • Direct income- interest income from investments; other income
  • Other income
  • Expenditure- personnel; Board expenditure; Occupancy expenditure; Cleaning expenditure; Licenses and insurances expenditure; Postages and telephones; Advertising expenses; Printing and stationary expenses; Travel and entertainment expenses; Repairs and maintenance expenses; Rental expenses- equipments
  • Charges- Finance charges; Professional charges; Training charges
  • Depreciation
  • Other expenses
  • Sub codes- entity; department;