Books of Account to Be Kept by a Company

Books of Account to be kept by a Company Every company must maintain proper books of accounts of its affairs. The following transactions must be entered in the books of accounts of the company which must be kept at its registered office :a. all sums sums of money money received received and expended expended by the company company and the the matters matters in respect respect of which which the respect of which the receipt and expenditure took place; b. all sales and purchas purchases es of goods by the the company company;; and and c.

the asse assets ts and and liabil liabiliti ities es of the the company company..

d.

in the case of a company engaged engaged in production production,, processing, processing, manufactu manufacturing ring or mining mining activitie activities, s, such particulars relating to utilisation of material or other items of cost as may be prescribed relating to certain class of companies as the entral !overnment may re"uire.

The books of accounts must comply with the following conditions :#. The books books must give give a true true and fair fair view of of the state state of affair affairs s of the company company or the the branch branch office, if any, and explain its transaction. $. The books books must be kept on accrual accrual basis basis and accordi according ng to double entry entry system system of accounti accounting. ng. Every company must keep its books of account at its registered office. %owever, %owever, some of the books of account may be kept at such other place in &ndia as the 'oard of (irectors may decide, provided a notice in writing giving full address of that other place alongwith re"uisite filing fee is filed with the )egistrar of ompanies within seven of such decision. &f the company has a branch office, the books of account relating to transactions at the branch office may be kept at that branch office, but proper summarised reports and statements must be sent to the registered office or such other place where the books are kept, at intervals of not more than three months. The books of account of the branch must give a true and fair view of the affairs of the branch and clearly explain its transactions. They must not conceal any transaction and also not disclose any transaction which is fictitious. The books of accounts and other documents and records are open to inspection by any director during business hours. *imilarly, *imilarly, they are open to inspection by the )egistrar of ompanies or an officer authorised by the entral !overnment. These books and papers together with the vouchers pertaining to entries made must be maintained for at least + years. &t has been clarified by the (epartment of ompany ffairs ffairs in their ircular o. $+/ dated $/#0+/ that the books of account should be prepared and maintained in indelible ink 1and not in pencil2. The following persons are responsible for maintaining maintaining the books of accounts of a company :#. The managi managing ng dire directo ctorr or manage manager; r; $. &f the company company has neither neither a managing managing direct director or nor manager, manager, then then every directo directorr of the company; company;

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Every officer and other employee who has been authorised and to whom responsibility to maintain the books has been alloted by the 'oard of (irectors.

&f any of the persons referred to above fails to take all reasonable steps to maintain proper books of accounts or has by his own willful act been the cause of any default by the company in this respect, he is punishable with imprisonment up to six months or with fine which may extend to )s. #,333 or with both. %owever, no person can be sentenced to imprisonment unless it is proved that the contravention was committed by him wilfully. Preparation of Balance Sheet and Profit and Loss Account The company has to prepare its balance sheet and profit 4 loss account from the books of account maintained by it. Every 'alance *heet of a company must give a true and fair view of the state of affairs of the company as at the end of the financial year and must be in the prescribed format. &f the responsible for maintaining proper books of account fails to take all reasonable steps to secure compliance by the company with the re"uirement of law relating to the form and contents of the balance sheet, he is liable for each offence to imprisonment for a term extending up to six months or to fine up to )s.#,333- or to both. Form of Balance Sheet, 5art # to *chedule 6& of the ompanies ct, #078 gives the format in which the balance sheet is to be prepared. The schedule specifies $ types of formats, the hori9ontal format and the vertical format.  company can prepare its balance sheet in either of the $ formats. &n the hori9ontal format, the liabilities including the share capital are placed on the left side and assets of all types on the right. The main heads in this form are arranged as under: 1a2 *hare apital 1a2 ixed assets 1b2 )eserves and surplus 1b2 &nvestments 1c2 oans 1c2 urrent assets, loans and advances 1d2

urrent liabilities and 1d2 hatever information which is re"uired to be given in the hori9ontal format must also be given in the vertical format. *ummarised prescribed vertical form of balance sheet is given be low: I. Sources of Funds 1#2 *hareholders? funds 1$2 oan funds --------------------Total II Application of Funds

1#2 ixed assets 1$2 &nvestments 1/2 urrent assets, loans and advances ess: urrent liabilities 4 provisions 1@2

1a2 here the auditor is unable to express any opinion in answer to a particular "uestion, his report shall indicate such fact together with the reasons why it is not possible for him to give an answer to such "uestion. The entral !overnment is empowered to issue orders re"uiring the auditor to include in his report a statement on such matters as may be specified. &n exercise of this power the entral !overnment has issued an order called CThe