Re-look at Account Transfers
Accounting Rules:
Based on the discussion in the comments below, accounting rules shall be the same for both inter/ intra branch transactions
Scenario 1) Disburse loan to a savings from Branch A to Branch B
Loan disbursal should: Debit Loan Portfolio and Credit a Liability account for "Branch Liability Transfer"
Savings should: Credit Savings Control and Debit a Liability account for "Branch Liability Transfer"
Scenario 2) Transfer from savings to Loan from Branch A to Branch B
Savings withdrawal in Branch A should: Debit Savings Control and Credits a Liability account for "Branch Liability Transfer"
Loan repayment in Branch B should: Credit Income from interest, income from fees, loan portfolio, income from penalty and Debit the account for "Branch Liability Transfer"
Scenario 3) Transfer from savings(pr-a) to savings(pr-b) where pr-a is a withdrawal and pr-b is a deposit from Branch A to Branch B
savings (pr-a) in Branch A : Debit pr-a' Savings Control and Credits a Liability account for "Branch Liability Transfer"
savings (b) in Branch B: Debits a Liability account for "Branch Liability Transfer" and Credit b's Savings Control
Branch Liability Transfer account shall be defined at an organizational Level
[Conversation with @pramod : Under https://demo.openmf.org/#/accounting, lets add a new section for "Map Organizational Accounts"
Here, a user will be able to edit predefined accounting types like "Suspense account for Liability Transfer", "Suspense account for Asset Transfer" or "Teller Cash Account". Need a set of API's for the same
Comments
I mostly agree with Binny. On a more conceptual level there is just the choice about not having true branch-based accounting. GL Accounts can be mixed between branches, and because of that it is relatively hard to do proper (balanced) reporting on branch levels, as you normally do not have the contra-account which would be an intercompany/branch account which you use in a situation whereby you have truly seperate GLs.
So if we just step away from that it still is not good practice (in any case) to debit and credit the same account at the same time, which is where the "Transfers in Suspense" GL seems to come in. However what should happen is that the entire 'transaction' of transferring these funds should be in 1 booking. So right now the way a transfer is reflected is a withdrawal on savings #1, and a deposit into savings #2 and they are accounted for separately using the funds sources linked, this is not correct. It should be 1 Journal doing it all.
To refer to the questions:
What happens if the fund source for two products are different?
This is not relevant, when transferring between accounts or between branches, there is no physical exchange of funds. The way this is settled is using an inter-branch account that is used to track balances owed between different branches. The way that would therefore be booked is:
Credit Savings (Branch A)
Debit Intercompany Account (Branch A)
Credit Intercompany Account (Branch B)
Debit Savings (Branch B)
This creates balanced entries in each branch (which is a requirement in any case) and it does allow MFI's to use that inter company/branch account to actually track what has been going on between different branches and make manual entries later on if they decide to actually make cash movements etc between them.
Vishwas, I would agree with Sander (and I stand corrected on my initial thought of not having an intermediate contra-account). Let's have the contra-account as I can see that this is the better way of doing transfers. Does this answer all queries and allow your to progress?
Sander: couple of doubts when Vishwas and I discussed this further:
a) When transferring from savings account X from Branch A to savings account Y at Branch B - shouldn't the entries be the other way around?
Debit Savings (Branch A)
Credit Intercompany Account (Branch A)
Debit Intercompany Account (Branch B)
Credit Savings (Branch B)
b) When doing intra-branch transfers - do you think it useful to use a Transfers in Suspense account for these too?
c) When configuring "Transfers In Suspense" account - should we have this configuration at the product level to capture which account to be used as "Transfers In Suspense" account? Or should this be set at the organization level?
My thoughts:
a) A disbursal of a loan to a savings account does not impact fund sources in anyway (i.e. it does not impact cash or bank accounts in anyway irrespective of whether the "Fund Source" for loan and "Savings Reference" refers to the same account or not). It is a notional money transfer with no actual money being transferred. Hence, we can simply do the following:
Debit: Loan Portfolio (i.e. the asset account selected for the Loan Product - under Loan Portfolio)
Credit: Savings Control (i.e. the liability account selected for the Savings Product - under Saving Control)
b) For inter-branch transfers - example transfer from Savings1 (Product X, at Branch A) to Savings2 (Product Y, at Branch B)
Debit: Savings Control (i.e. the liability account selected for the Savings Product X - under Saving Control) for Branch A
Credit: Savings Control (i.e. the liability account selected for the Savings Product Y - under Saving Control) for Branch B
I don't think it is necessary to have a contra account in between (to first transfer to the contra account and then from contra account to Savings2) since the amount movement happens in a single transaction.
If any financial reports (trial balance, income statement etc.) are unbalanced or does not show the right entries after this, then the issue is with the report. Not the accounting entry.
Note: If any transfer happens in two steps (like transfer of clients between branches) or physical cash being transferred between 2 branches - then there is a need for a contra account in between.