Be Presented As If The Mistake Had ThE ISSuES CONCErNiNg ACCOuNTiNg OF NONENTrEPrENEurial lEgal ENTiTiES

FROM THE REDACTION

Expenses Related to Loan Use Accounting of expenses related to loan use requires immediate recognition of expenses related to loan use as expenditures. Recognition of the above-mentioned expenses should be recognized as expenditures of the period during which they were made. The expense related to loan use represents the expenditure of the period.

The moment of actual payment and effectiveness of loan use are of no essential importance for its recognition. An organization, in the explanatory notes to its financial accounts, should show the applied accounting policy related to loan use. Accounting Policy and Mistakes The sum related to correction of mistakes made during the previous accounting period will be expressed by correction of the initial remainder in the organization’s unrestricted fund. Changing of comparative information is necessary if it is practically possible. It is possible that the mistakes made in preparation of financial accounts of the past periods will be revealed in the current accounting period. The mistakes may be of pure arithmetical character. The existence of mistakes, stipulated by the applied accounting policy, wrong interpretation of facts and carelessness, cannot be ruled out. Financial accounts, including comparative information of the past accounting periods, should be presented as if the mistake had been corrected in the accounting period during which it was made. Correspondingly, the correction sum related to each accounting period should be included in the sum of the net profit or losses of the same period. The correction sum related to the accounting periods that precedes the period shown in the financial accounts should be corrected in the initial remainder of net profits the earlier accounting periods. Any other information of the earlier accounting periods, like initial total sums, should be formulated anew as well. In the financial accounts, the organization should show the fact and character of the mistakes. Because of certain ambiguity and changeability, exact accounting of many items of financial accounts is impossible, only approximate evaluation of them is possible. Evaluation process implies consideration and taking of an appropriate decision based on the latest available information. For instance, there may arise a necessity of evaluation of bad debts, stale stock, useful wasting assets attendance term or a scheme of obtaining of economic profit; use of well-grounded accounting evaluation is the basic factor of preparation of financial accounts and does not decrease its trustworthiness. If the circumstances based on which evaluation took place have changed or new information, additional experience, and other phenomena have appeared, rechecking of the evaluation may become necessary. It will mot stipulate for correction of particular items and existing mistakes. It is often difficult to mark off the changes that took place in the accounting policy and accounting evaluations. This kind of change is considered as a change in the accounting evaluation and, correspondingly, will be clarified in the financial accounts. The result of the changes that took place in accounting evaluation will be shown in the calculation of the activities’ results: > in the accounting period during which the change took place if this change has an effect on the mentioned accounting period only; > in the accounting period during which the change took place and in the subsequent periods if this change has an effect on the future periods as well. A change in the accounting evaluations may have an effect on the current period only or both on the current and the future accounting periods. For instance: a change that took place in bad debts has an effect on the current accounting period only and to an extent that it is reflected in the given period. But the changes that took place in possible character of wasting assets’ economic profit or in term evaluation of useful assets attendance have an effect on the current period’s amortization costs and on each subsequent accounting period of the remaining term of useful assets attendance. In both cases the result of the change related to the current accounting period is shown on either revenues or expenses of the current period. And the results of the mentioned changes that have an effect on the future accountaccountinG BullEtin ThE iSSuES CONCErNiNg aCCOuNTiNg OF NONENTrEPrENEurial lEgal ENTiTiES 28 ing periods are shown in the form of either revenues or expenses of the future accounting period. The result of changes that took place in the accounting evaluations should be included in such classification of the accounting of activities’ results that was used for the previous evaluation. The same accounting policy should be applied in each accounting period. Changing of accounting policy is possible if this is required by Georgian legislation or the body that determines accounting standards, or if, as result of changing of accounting policy, phenomena or economic operations will be represented in the organization’s financial accounts in a more acceptable form. Introduction of the financial accounts standard may require retrospective or perspective representation of the changes that tool place in the accounting policy. A change that took place in the accounting policy may be shown both in retrospective and perspective way. With retrospective approach a new accounting policy applies to phenomena and operations as if it had always been used. A new accounting policy is applied to phenomena and operations from the date of introduction of such items. Perspective approach implies that a new accounting policy is applied to the phenomena and operations that take place after changes in the accounting policy. A new accounting policy in relation to the existing remainders is applied from the date of introduction of changes. The following should be shown in the organization’s financial accounts: . The accounting policy used for making out of financial accounts; . The results of changes that took place in the accounting policy and correction of the existing mistakes. Explanatory notes of financial accounts concerning the accounting policy include the evaluation system and specific accounting policy used in preparation of the financial accounts, which is necessary for correct understanding of the financial accounts. Incomes This part contains the order of accounting and representation in financial accounts of the income obtained from the organization’s founders, members and supporters. A single membership fee will be recognized as income right after admission of a candidate as a member. A member’s obligation concerning the membership fee is determined by the organization’s statute or other internal regulative document. The organization may have a prescribed single fee related to admittance in membership which is intended for preparation of the candidate’s documents or covering of other expenses. Application for membership in the organization entails the applicant’s obligation to pay a single membership fee. The applicant may fulfill this obligation before his recognition as a member, and, in accordance with the established order, the sum paid by him should be considered as a received prepayment. It will be recognized as income after the authorized body takes a decision on his admittance in membership. Periodic membership fees should be recognized as income after arising of payment obligation (beginning or end of a month, quarter, half year or financial year). Before arising of the obligation of paying the membership fee the fulfilled obligation of the organization’s member is recognized as a received prepayment. Special membership fee should at first be recognized as a beforehand fulfilled membership obligation. Special membership fees will be recognized as income in accordance with their amortization. A membership obligation ful- filled is liable to rectangular amortization during the period of 10 years. The organization may have such special membership fees that release the organization’s member from further obligations related to membership fees, and give permanent membership rights. Such membership fee by far exceeds the amount of periodical fees. If a member gives up membership before the expiration of the amortization period or breaks up relations with the organization due to circumstances beyond his control, a special part of unamortized membership fee will be recognized as income on establishing of the fact. Money assets obtained as donation should be recognized on their receiving. Non-money assets obtained as donation should be recognized as a fund on receiving the right of commanding them. At first non-money donations should be appraised according to their real cost. Georgian Civil Code envisages indication of the donor’s personality in the organization’s statute. If the organization already has donors indicated in the statute, the donations received from them should be considered as the organization’s operational income. If the organization receives money grants from donors that are not registered in its statute, such donation should be shown as “a special item”. Non-money assets received as donations may be used at a time or during a long period. The cost of non-money assets increases the organization’s fund. The founder’s fixed payments for the fund’s replenishment are recognized in registration of the organization and on taking a decision on increasing of funds. Fixed payments for funds’ replenishment are classified taking into account the limited nature of the funds and are directly shown on the funds’ account. According to the legislation (Georgian Civil Code), for securing the object the organization’s founders are obliged to deposit the necessary fixed amount of funds. The fixed payment to the funds should be recognized on its registration in the organization. If during the period of the organization’s functioning the founders, for achieving the object, take a decision to increase funding sources and assume an obligation of implementation of additional payments, it should be recognized as income on taking the decision. Fixed payments recognized in the funds represent demands to the founders until factual replenishment of the funds. Thus, in the explanatory notes of financial accounts the organization should reveal information on the incomes related to admittance of new members, incomes obtained in the form of membership fees, and the funds and incomes received from donors. In conclusion we offer you the example of financial accounts’ components (see enclosure). The Structure of Business Accounting’s Accounts of Non-Entrepreneurial (Non- Commercial) Legal Entities assets 1. Floating assets 11 Money in the fund 1110 National currency in the fund 1120 Foreign currency in the fund 12 Money on bank accounts 1210 National currency in the bank 1220 Foreign currency in the bank 1 Short-term investment 1 10 Short-term investment 14 Short-term requirements 1410 Requirements in relation to the organization’s personnel 1420 Requirements in relation to the management 14 0 The advance paid to the supplier 1440 Requirements in relation to the organization’s members 1450 Requirements in relation to donors 1460 Tax requirement in relation to VAT 1490 Other short-term requirements 16 Stock of materials 1610 Stocks of materials and capital equipment 17 nitial expenses 1710 The prepaid rent 1790 Other initial expenses 18 Accrued requirements 1810 The dividends to be collected 1820 The interests to be drawn 1890 Other accrued requirements 19 Other floating assets 1910 Other floating assets 2. Long Term Assets 21 Fixed assets 2110 Constructions 2120 Office equipment 21 0 Furniture and other inventory 2140 Means of transport 2190 Equipping of the rented property 22 Accumulated depreciation 2210 Wear of constructions 2220 Wear of office equipment 22 0 Wear of furniture and other inventory 2240 Wear of means of transport 2290 Wear of equipment of the rented property 2 Long-term requirements 2310 Requirements related to finance lease 2 90 Other long-term requirements 24 Long-term investment 2410 Participation in other society 2490 Other long-term investments Liabilities . Operating Liabilities 1 Current liabilities 110 Liabilities originated from supply and services 120 Wages to be paid 1 0 Rent 140 Liabilities to the organization’s personnel 150 Liabilities to donors 190 Other current liabilities 2 Short-term loans 210 Short-term loans 220 The current part of long-term loans Tax liabilities 10 Income tax to be paid 20 Social tax to be paid 90 Other tax liabilities 4 Accrued liability 410 Interest to be paid 490 Other accrued liability 4. Long Term Liabilities 41 Long term liabilities 4110 Long term loans 4120 Finance lease liabilities 42 Assignments Assignments related to provision of pensions Other assignments 4 Other long-term liabilities 4410 Special membership fees 4420 Other long-term liabilities 5. Funds 51 Unlimited fund 5110 Cumulative general fund 5120 Cumulative deficit 51 0 The result of the accounting period’s activity 52 Temporarily limited fund 5210 Nest egg 5220 Long term assets fund 52 0 Short term assets fund 5240 Project support fund 5 Permanently limited fund 5 10 Nest egg 5 20 Long term assets fund Incomes and Expenses 6. Incomes 61 Operation incomes 6110 Membership fees 6120 Donations 61 0 The developed grants 6190 Other operation incomes 62 Other incomes 6210 Percentage incomes 6220 Dividends 6230 Non operation profit 6290 Other non operational incomes 7. Expenses 71 Operation expenses 7110 Wages 7120 Social deductions on wages 71 0 Deterioration and amortization 7140 Repair expenses 7190 Other operation expenses 72 Total and administration expenses 7210 Remuneration of labor 7215 Social deductions 7220 Rent 7225 Office inventory 72 0 Communication expenses 72 5 Insurance 7240 Repairs 7245 Computer expenses 7250 Consultation expenses 7255 Deterioration and amortization 7260 Other tax expenses 7290 Other total expenses 7 Non operation expenses 7 10 Percentage expenses 7 20 Non percentage losses 7 90 Other non operation expenses 8. Special Incomes and Expenses 81 Special incomes and expenses 8110 Special incomes 8120 Special expenses