PROPER BOOKS OF ACCOUNT MAINTAINED UNDER COMPANIES ACT, 1956

PROPER BOOKS OF ACCOUNT MAINTAINED UNDER COMPANIES ACT, 1956

The article mainly focus on proper books of account i.e. accrual basis and double entry book keeping.


Brief: Section 209 of the Companies Act provides books of account kept by the company. The books of accounts to be kept at registered office of the company in a proper manner. In a brief, the following details to be mentioned in the books of accounts

1) all sums of money received and expended by the company and the matters in respect to which the receipt and expenditure takes place
2) all sales and purchases of goods of the company
3) the assets and liabilities of the company

In case of books of accounts are kept at other than registered office of the company at such other place in India as the board may decide the place and necessary intimation to Registrar of Companies a notice in writing giving the full address of that other place within seven days of decision taken in the board meeting.

Sub Section (2) provides that the company is having branch office in or outside India, then it should also comply sub section (1) of the Companies act, 1956.

Sub section (3) provides that for the purpose of sub section (1) and (2) proper books of account shall not be deemed to be kept to the matters specified therein

Sub clause (a) of section 3 of Section 209 provides that books are not kept as are necessary to give true and fair view of the state of affairs of the company or branch office as the case may be and explain its transactions.

Sub clause (b) of sub section 3 of section 209 provides that if such books are not kept on accrual basis and according to the double entry system of recording.

In the above clause there are two point, one is accrual basis and another is double entry system of recording. If both the methods are not followed then it will not be treated as proper books of accounts maintained by the company as per Section 209 of the Companies Act, 1956

Sub clause(b) of sub section 3 of section 227 of the companies act, 1956 provides that the auditor has to state in his opinion, proper books of account as required by law have been kept by the company so far as appears from his examination of those books, and proper returns adequate for the purposes of his audit have been received from branches not visited by him;

Sub clause (iii) of sub section (2AA) of Section 217 provides that the directors had taken proper and sufficient care for the maintenance of adequate accounting records in accordance with the provisions of this Act for safeguarding the assets of the company and for preventing and detecting fraud and other irregularities;

From the above, Section 209, 217 and 227 emphasizing proper books of accounts to be maintained.

Accrual basis: Accruals is nothing but accumulation. Accrual basis of accounting is a system of accounting that matches revenues and expenses, respectively, to the period they were earned and incurred. Under accrual basis accounting, revenue is recorded when product is shipped or services provided. Similarly, accrual basis accounting requires expenses be recorded in the period in which the related revenues were recognized. Accrual basis accounting differs from cash basis accounting, where revenue and expense are recorded when Cash is received or paid. Here's an example of accrual basis accounting: suppose a company sells and Motor pumps to a customer for Rs.10000 in year 1. The customer pays Rs.3000 in year 1 and Rs.7000 in year 2. Under accrual basis accounting, the entire Rs.10000would be reported as revenue in year 1, even though Rs.7000 wasn't received until year 2. Under accrual basis accounting, the company recognizes revenue when it has substantially fulfilled its obligations to the customer. Because accrual basis accounting requires allocating revenue and expense to different time periods, it is subject to both error and abuse. Nevertheless, only accrual basis accounting meets generally accepted accounting principles.

AS-1 of Accounting Standard on Disclosure of accounting policies refers in its report that if the fundamental accounting assumptions viz going concern, consistency and accrual are followed in financial statements, then specific disclosure is not required. If the assumptions are not carried out, then necessary disclosure to be reported in the accounts.



Double Entry Book keeping: The double-entry bookkeeping system refers to a set of rules to record financial information in a financial accounting system wherein every transaction or event impacts at least two different accounts. There should be debit and credit for each transactions
• The double entry accounting system records financial transactions in relation to asset, liability, income or expense related to it through accounting entries.
• Any accounting entry in double entry accounting system has two effects one of increasing one account and decreasing another account by equal amount
• The following example relates to double entry book keeping.




The golden rule of Double entry book keeping.
Double entry book keeping: Debit the receiver credit the giver
Debit what comes in and credit what goes out
Debit all expenses and losses and credit all incomes and profits.


Debit/credit
Account Debit Credit
Assets ▲ ▼
Expenses ▲ ▼
Liabilities ▼ ▲
Equity ▼ ▲
Revenue ▼ ▲


Inspection of Books of accounts: As per sub section (4) of section 209 of the companies act, the books of accounts and other books and papers shall be open to inspection by any director during business hours.

In case the director wants to send his agents to inspect the books of accounts subject to the condition that the agent must give an undertaking to the company that he shall not pass on any information to any person other than the Director who has appointed him to carry out the inspection. ( Sugrabai Alibhain vs Amtee properties Private limited )



Preservation and destruction of books of accounts: As per sub section 4A of section 209, the books of accounts of the company together with the vouchers relevant to any entry in such books of account relating to a period not less than eight years immediately preceeding current year

In case the incorportion of the company is less than eight years, then entire books of accounts preceeing current year shall be preserved.



Non compliance of Section 209 of the Companies Act, 1956 : Sub section 5 of Section 209 provides that if any of the person referred in sub section 6 of section 209 fails to take reasonable steps to secure compliance by the company with requirements of this section or any wilful act then he will be liable for imprisonment for a term which may extend to six months or with a fine of Rs.ten thousand rupees or both. The person referred in sub section 6 are as follows

Where the company has managing director or manager , such managing director or manager and all officers and employees of the company


In case the company has neither managing director or manager then every director of the company will be referred as person referred in sub section 6 of Section 209 of the Companies Act, 1956.