A company is about business. A business means basically the buying and selling of goods or services between two or more persons with an intention of earning profit. Thus, doing business involves a series of transactions throughout the financial year. To keep a track of these transactions and to measure the benefit earned by a company through them can be done through systematic documentation of such transactions.
Documenting the financial transactions of a business is called ‘accounting such transactions’. By taking an account of the transactions, the business owners can trace where it stands in terms of profitability. Although small businesses such as sole proprietary concerns or joint family businesses are not mandatorily required to maintain detailed accounts of their financial transactions, big businesses in the form of companies are bound to keep accounts of their transactions as per the demands of the company law (i.e as per the Companies Act 2013.)
The accounts of a company have to be prepared as per the accounting principles and policies adopted and recognized in the eyes of law. Also, the AS(i.e Accounting Standards) shall be given equal importance while recording financial transactions. This shall lead to uniformity in accounting practices across all companies in India.
We shall further discuss the additional legal provisions that a company needs to comply with as per the Indian Company law.
For that, we need to understand what exactly the word ‘accounts’ or ‘books of accounts’ mean as given under law:
Books of accounts include,
Accounts of companies- The Legal provisions:
1) The books of accounts of every company shall be kept and preserved at the registered office of such company. All other required books along with the company’s financial statements shall also be kept in the same place.
Accounting records of the company’s branch offices shall also be preserved at its registered office.
A company may keep its accounts at any other place as decided by the company’s Board of Directors provided the notice of the same is given to the Registrar of Companies within 7 days of such decision along with the address of such other place.
The accounts shall be prepared on an accrual basis and as per the double-entry system of accounting.[i]
Keeping such books of accounts in electronic form is also permitted by law in the prescribed manner.
2) The branch office of every company whether in or outside India shall send summarized returns of its books of accounts to the company’s registered office so as to comply with the above provision.
3) The directors of every company shall be authorized to inspect the company’s books of accounts maintained at its registered office during business hours.
In case of any financial records maintained by the company outside India then the directors may inspect such information on fulfillment of the conditions as prescribed by law.
For inspecting the records of the subsidiaries of such company, the director who is empowered to do so through a Board resolution shall be authorized to do such inspection.
4) The officers and employees of the company shall provide all the required assistance and facilities to the persons having the authority to inspect the books of accounts of the company.
5) The books of accounts of the companies for a period of at least 8 financial years preceding the current financial year shall be preserved in a good manner.
In case less than 8 years have passed since the company has come into existence, then the books of accounts of such proportionate number of years shall be preserved by the company.
In case of any investigation being ordered into the affairs of the company, it may be required to preserve the books of accounts for more than 8 years as well.
Penalty for contravention on the company’s officers:
The managing director of the company, whole-time director in charge of finance, CFO, or any other officer delegated with the duty of complying with the above provisions shall on violating the same be punished with a minimum fine of 50,000 and a maximum fine of 5 lakh.
Accounts are the representation of the company’s performance and are an important piece of information for the stakeholders of the company and the traders and prospective investors. Thus, every company must prepare and present them in a truthful and fair manner without indulging in any wrongful practices which may bring disrepute to the company itself.
This Article Does Not Intend To Hurt The Sentiments Of Any Individual Community, Sect, Or Religion Etcetera. This Article Is Based Purely On The Authors Personal Views And Opinions In The Exercise Of The Fundamental Right Guaranteed Under Article 19(1)(A) And Other Related Laws Being Force In India, For The Time Being. Further, despite all efforts that have been made to ensure the accuracy and correctness of the information published, White Code Legal and Tax shall not be responsible for any errors caused due to human error or otherwise.
