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 :-
b.all sales and purchases of goods by the company; and
c.the assets and liabilities of the company.
d.in the case of a company engaged in production, processing, manufacturing
or mining activities, such particulars relating to utilisation of material or other
items of cost as may be prescribed relating to certain class of companies as
the Central Government may require.
Every company must keep its books of account at its registered office. However,
some of the books of account may be kept at such other place in India as the Board
of Directors may decide, provided a notice in writing giving full address of that other
place alongwith requisite filing fee is filed with the Registrar of Companies within
seven of such decision.
If 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. Similarly, they are open to
inspection by the Registrar of Companies or an officer authorised by the Central
These books and papers together with the vouchers pertaining to entries made must
be maintained for at least 8 years. It has been clarified by the Department of
Company Affairs in their Circular No. 2/83 dated 2/3/1983 that the books of account
should be prepared and maintained in indelible ink (and not in pencil).
If 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 Rs. 1,000 or with both. However, no person can be sentenced to imprisonment unless it is proved that the contravention was committed by him wilfully.
The company has to prepare its balance sheet and profit & loss account from the
books of account maintained by it. Every Balance Sheet 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.
If the responsible for maintaining proper books of account fails to take all reasonable
steps to secure compliance by the company with the requirement 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 Rs.1,000/- or to
Part 1 to Schedule VI of the Companies Act, 1956 gives the format in which the
balance sheet is to be prepared. The schedule specifies 2 types of formats, the
horizontal format and the vertical format. A company can prepare its balance sheet
in either of the 2 formats. In the horizontal 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:
(a) Share Capital (a) Fixed assets
(b) Reserves and surplus (b) Investments
(c) Loans (c) Current assets, loans and advances
Current liabilities and (d) Miscellaneous
expenditure to the provisions extent not written
off or adjusted
In the vertical format, the various heads of liabilities and assets are arranged
vertically and current liabilities are shown as deduction, from current assets.
Whatever information which is required to be given in the horizontal format must also
be given in the vertical format. Summarised prescribed vertical form of balance sheet
is given below:
The Central Government may, on the application or with the consent of the Board of
Directors of the company, by order, modify in relation to that company, any of the
requirements as to matters to be stated in the company's balance sheet or profit and
loss account for adapting them to the circumstances of the company.
Though no format has been prescribed for the profit and loss account, Part II to
Schedule VI of the Companies Act, 1956 gives a list of items which must be disclosed
in every profit & loss account. Every profit and loss account of a company must give
a true and fair view of the company's profit or loss for the financial year for which it is
The Board of directors must present to the shareholders of the company, the balance
sheet and a profit and loss account for the financial year at every annual general
meeting. In the case of companies which are not commercial organisations such as
Section 25 companies, instead if the profit & loss account, an income & expenditure
account may be prepared. The profit and loss account to be placed in the FIRST
annual general meeting should relate to a period beginning with the incorporation of
the company and ending with a day, the interval between which and the date of the
meeting does not exceed nine months. In case of subsequent annual general
meetings, the profit and loss account should relate to a period beginning with a day
immediately after the period for which the preceding profit & loss account was made
and ending with a day, the interval between which and the date of the meeting
should not exceed six months. The financial year may be more or less than a
calendar year, but it must not exceed 15 months or with the special permission of the
Registrar, 18 months.
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