A balance sheet summarizes the book value of the assets of a corporation; its liabilities, which are debts that must be repaid; and the member or owners’ equity or net worth. The accounting identity is that the assets must equal or be balanced by the sum of liabilities and owners’ equities. The assets on the cooperative’s balance sheet looks much the same as for a non-cooperative corporation, but there is one key difference: Investments in Other Cooperatives reflects any equity a cooperative has in another cooperative. For example, a cooperative that borrows from a cooperative lender such as CoBank has equity in CoBank. This equity comes from the patronage refunds retained by CoBank as equity. It is an asset on the balance sheet for the cooperative and equity on the balance sheet for CoBank. Patron Refunds Payable is a liability a cooperative must document to account for the cash portion of patronage refunds that are being paid to members. This term is Dividends Payable in a non-cooperative corporation.
The members’ equity section of a cooperative’s balance sheet is the biggest difference in terminology relative to the non-cooperative corporation. Common Stock or Membership Fees is the value of the membership fee paid by each member. These are fees for a share of purchased common stock in a stock cooperative or the value of membership certificates in the case of a non-stock cooperative. Allocated Equity, sometimes called Patronage Ledger Credits, Retained Refunds, Capital Retains, or Revolving Capital, is the value of the patronage refunds retained by the cooperative equity. The word allocated is used to denote that this is equity, which has been allocated to the member on the basis of patronage. Unallocated Equity, which can be thought of as unallocated, retained earnings, or Unallocated Reserves or Surplus, is equity not allocated to the member based on patronage. For most cooperatives, this is non-patronage income or any other income on which the cooperative has paid corporate income tax. In a worker cooperative, this is called Collective Account. All of this is Retained Earnings in a non-cooperative corporation. Some food and farm supply cooperatives issue purchased stock, which is Preferred Stock, but this is an uncommon practice.
Organizations such as school districts or similar government organizations may not be eligible for membership in a cooperative. Similarly, some agricultural cooperatives may not be able to extend membership to non-farmers. The cooperative, however, can provide patronage refunds based on their patronage levels. This is common in cooperatives with an energy business unit.