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Explain books of accounts
Books of accounts are the records, which maintain the day to day business operations of all the business establishments and taxpayers, to know results of their operations.
Books of accounts should be registered annually. For certificates like certificate of registration (COR) with the Bureau of Internal Revenue (BIR), these books of accounts are required. They are maintained for six years from the end of the relevant assessment year. These are maintained at the head offices or at each of the offices.
Maintaining books of accounts
Professionals like legal, medical, engineering, architectural, accountancy, technical consultancy, interior decorations and who are notified by the Central Board of Direct Taxes (CBDT) in future, maintain the books of accounts.
As per the income tax Act, failure in maintaining these books as per section 44AA or rule 6F, professionals may have to pay a penalty of Rs.25000/- unless they provide reasonable justification like the bank statements, cash vouchers, bills, fixed asset registers etc. to the officer.
- General journal − Records business transactions as it happens.
- General ledger − Summarizes journal entries and their ending balances.
- Cash receipt − Records cash sales/ receivables.
- Cash disbursement − Records cash payments of payables/expenses.
- Sales − Records sales on credit.
- Purchase − Records purchases on credit.
Books of accounts can be of three types, which are as follows −
- Manual − Journal and ledger. Recording is done manually.
- Loose − leaf: These are printed, bounded journals and ledgers. Recording is done by using MS-Excel.
- Computerised − Accounting program
Other benefits in maintaining the books of accounts are as follows −
- Easy to get loans from financial institutions.
- Can value their business effectively.
- Correct selling price for the product can be fixed.
- Funds can be managed effectively.
|Books of accounts||For service business||For business (sales of goods/properties)|
|General journal||General journal|
|General ledger||General ledger|
|Cash receipt journal||Cash receipt journal|
|Cash disbursement journal||Cash disbursement journal|
To maintain books of accounts in electronic form, it should satisfy the below mentioned conditions −
- Mode of electronic form should be accessible in India.
- Original format should be maintained.
- Information from the branch office kept unaltered.
- Should be in readable form.
- Place of storage/retrieval/display/printout of records are not disposed (unless, if permitted by law).
- Backup is taken periodically and kept in various locations.
- Companies should intimate registrar at the time of filing financial statements (on an annual basis). Name of service provider, internet protocol, service provider address, service provider address, address of records (maintained in cloud).
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