Why must a company keep books of account?
A company keeps books of account so that they show a true and fair view of the state of its affairs, including its branch offices, and explain the transactions. Section 128 requires that record. The books are kept on the accrual basis and according to the double-entry system.
What must the books show?
The record covers money received and spent, sales and purchases, assets and liabilities, and, where the company is in production or processing, the items of cost the Central Government may require. The books of each financial year are preserved for at least eight years. They are kept at the registered office, unless the board decides otherwise within the limits of the section. That place, and the notice to the Registrar, is on the books page. Keeping the same record on a server is on the online books page.
Which statements do they support?
The books are the source of the financial statements: a balance sheet and a statement of profit and loss, and, unless the company is a small company, a one person company, or a dormant company, a cash-flow statement. Those statements are filed with the Registrar. They are also what the income-tax return is drawn from. The return itself is on the income-tax page. The books do not appoint the auditor and do not choose the tax regime.
Who does not file accounts with the Registrar?
A partnership firm and a proprietorship do not file AOC-4. Their duty to keep accounts, where a tax law requires it, is that tax law. A company does not escape section 128 because it is small. A small company still keeps the books. It is excused from the cash-flow statement, not from the books.
Frequently asked questions
Four questions cover a cash book, the cash-flow statement, the auditor, and the eight-year period.
Is a cash book enough?
No. The Act requires books on the accrual basis, kept by double entry, that explain the transactions and give a true and fair view. A list of bank payments does not do that on its own.
Does every company prepare a cash-flow statement?
No. A small company, a one person company, and a dormant company are outside the cash-flow statement. Other companies prepare one.
Do the books appoint the auditor?
No. The books are what the auditor examines. The appointment is a decision of the board or the members, filed in Form ADT-1.
Is eight years counted from incorporation only?
The books of each year are kept for at least eight years. A company that is younger than eight years keeps what it has from incorporation.
Sources
Books of account are section 128 of the Companies Act, 2013. Financial statements are section 129. Where the books are kept, and keeping them online, are separate guides.