Companies Act Section 2(13) Books Of Account

Understanding Books of Account under the Companies Act, 2013

Books of Account Section 2(13)

The term "books of account" includes records maintained in respect of:

All sums of money received and expended by a company and matters in relation to which the receipts and expenditures take place.

All sales and purchases of goods and services by the company.

The assets and liabilities of the company.

Items of cost as may be prescribed, in case of a company which belongs to any class of companies specified under the Act.

Key Features:

1. Receipts and Expenditures: 

Books of account must record all financial transactions related to money received and spent by the company. 

This includes details on the nature and purpose of the transactions.

2. Sales and Purchases: 

The records should capture all sales and purchases of goods and services made by the company. 

This ensures that revenue and expenses are accurately tracked.

3. Assets and Liabilities: 

The books of account must reflect the company's financial position by maintaining records of its assets (such as property, equipment, and inventory) and liabilities (such as loans, debts, and obligations).

4. Cost Accounting Records: 

For certain classes of companies, as specified by the Act, records of costs must be maintained. 

This includes detailed information on the cost of production, processing, manufacturing, or mining activities.

Importance:

1. Financial Reporting: 

Accurate and comprehensive books of account are crucial for the preparation of financial statements, which provide insights into the company’s financial performance and position.

2. Legal Compliance: 

Maintaining proper books of account is a statutory requirement under the Companies Act, 2013.

Non-compliance can result in legal penalties and affect the credibility of the company.

3. Audit and Inspection: 

Books of account are essential for audits, both internal and external. 

Auditors rely on these records to verify the accuracy of financial statements and ensure that the company adheres to accounting standards and regulations.

4. Transparency and Accountability: 

Proper accounting records promote transparency and accountability within the company. 

They provide stakeholders, including shareholders, directors, and regulators, with reliable information on the company’s financial activities.

5. Decision Making: 

Accurate financial records assist management in making informed decisions regarding budgeting, forecasting, and strategic planning.

Maintenance and Accessibility:

Place of Keeping: Companies are required to keep their books of account at their registered office. However, they can also be kept at other places with the board’s decision and by informing the Registrar of Companies (RoC).

Electronic Form: Books of account can be maintained in electronic form, provided they meet the requirements specified under the Act and are accessible for inspection.

Period of Retention: Companies are required to preserve their books of account and relevant financial records for a minimum period of eight years immediately preceding the current year.