As per the Companies Act, 2013, every company registered with the Ministry of Corporate Affairs (MCA) in India—regardless of its size—is required to maintain a clear record of its daily financial transactions.
These records help the company assess whether it is operating at a profit or loss, while also providing transparency to external stakeholders about the state of the business.
Under the Companies Act, 2013, this record is called books of account. Properly maintained books form the foundation for preparing annual financial statements, filing ROC and Tax returns, and ensuring compliance with legal requirements.
In this article, we will understand what books of account mean, where they are kept, how branches handle them, and who is responsible, based mainly on Section 128 of the Companies Act, 2013.
Key Takeaways
- Books of account record all day-to-day financial transactions of a company.
- They are mandatory under Section 128 of the Companies Act, 2013.
- Financial statements are prepared using books of account, not the other way around.
- Branch offices must keep their own records and send summaries to the registered office.
- Companies must preserve books of account for at least eight financial years.
What Are “Books of Account” and Why Do They Matter?
In simple words, books of account are detailed records of all money-related activities of a company registered with the Ministry of Corporate Affairs (MCA) of India.
These financial records, maintained by the company’s finance department, show where money comes from, where it goes, what the company owns, and what it owes.
Under the Companies Act, books of account include records of:
- Money received and money spent
- Sales and purchases of goods or services
- Assets (what the company owns, like cash, machines, buildings)
- Liabilities (what the company owes, like loans or unpaid bills)
These records are checked during staturory audits, inspections, internal audits and while preparing financial statements. Many beginners assume only final profit or loss matters, but without proper books, even preparing that final number becomes impossible.
Example: If an Indian company receives ₹5,00,000 from customers and pays ₹3,50,000 for rent, salaries, and materials, these financial entries must be recorded properly. These records together form the company’s books of account.
Difference Between Books of Account, Books and Papers, and Financial Statements
This often confuses beginners, so let’s break it simply.
Books and papers is a broad term. It includes:
- Books of account
- Vouchers, bills, receipts
- writings
- Contracts, deeds
- Minutes, registers
As per section 2(12) of the companies act, 2013, these can be on paper or in electronic form.
Books of account are a part of books and papers. They focus only on financial records.
Financial statements are prepared from the books of account. As per section 2(40) of the Companies Act, 2013, financial statements include:
- Balance Sheet as at the end of the financial year (position of assets and liabilities at year end)
- Profit and Loss Account, or in the case of a company carrying on any activity not for profit, an income and expenditure account for the financial year (income and expenses for the year)
- Cash Flow Statement for the financial year
- Statement of changes in equity, if applicable (if applicable), and
- Any explanatory note annexed to, or forming part of, any of the above document
In real life, books of account are maintained daily, while financial statements are prepared once a year.
What Is a Financial Year for a Company?
For Indian companies, the financial year normally runs from 1st April to 31st March. For example, the financial year 2025-2026, starts from 1st April 2025 to 31st March 2026.
If a company is incorporated after 1 January, its first financial year can extend up to 31 March of the following year.
There are limited exceptions, mainly for companies linked to foreign holding or subsidiary companies, where the Central Government may allow a different financial year. For most Indian companies, this exception does not apply.
Requirement of Keeping Books of Account (Section 128)
Section 128 makes it compulsory for every company to:
- Keep proper books of account
- Follow the accrual basis (income and expenses are recorded when they arise, not when cash is paid or received)
- Use the double-entry system (every transaction affects at least two accounts)
The books of a company must give a true and fair view of the company’s affairs.
In simple terms, the records should reflect the real financial position of the company, not a manipulated or incomplete picture.
Where Should Books of Account Be Kept?
Normally, books of account must be kept at the registered office of the company. However, the Board of Directors can decide to keep them at another place within India.
If this happens:
- The company must inform the Registrar of Companies
- This intimation must be filed in Form AOC-5
- It must be done within 7 days of the Board’s decision
From experience, companies often choose a corporate office or accounts department location instead of the registered office.
Books of Account at Branch Offices – How It Works in Practice
Each branch office, whether in India or outside India, must maintain its own books for transactions done at that branch.
But there is an important additional requirement:
The branch must send proper summarized returns periodically to the registered office. These summaries are usually sent quarterly.
Example:
If XYZ Ltd has branches in Bengaluru, Kolkata, and Chennai:
- Each branch keeps its own daily records
- The registered office does not need full daily entries from branches
- It needs summarized information regularly to maintain overall control
This system helps companies manage branches without duplicating daily work at the head office.
Maintenance of Books in Electronic Form
The law allows companies to keep books in electronic form, such as accounting software or cloud systems.
Some important practical conditions apply:
- Electronic records must remain accessible in India at all times
- Records should stay complete and unaltered
- Information received from branches must not be changed
- Records must be readable and printable
From 1 April 2023 onwards, companies using accounting software must ensure:
- An audit trail is maintained
- Every change is logged with date and details
- The audit trail feature cannot be disabled
Also, even if books are stored on cloud servers, daily backup must be kept on servers physically located in India.
Each year, while filing financial statements, the company must inform the Registrar about:
- Service provider details
- IP address
- Location of data storage
- Person responsible in India if service provider is outside India
Inspection of Books of Account
Books maintained in India must be open for inspection by directors during business hours. For subsidiaries, inspection can be done only by a person authorised by a Board resolution
If a director needs financial information kept outside India:
- A written request must be given
- The company must provide the information within 15 days
A director must seek inspection personally. It cannot normally be done through an agent or representative.
Preservation of Books of Account
Books of account must be kept in good order for at least 8 financial years immediately preceding the current financial year. If the company is less than 8 years old, all previous years’ records must be kept.
Example: If a company is preparing accounts for FY 2021–22, it should preserve books from FY 2012–13 onwards.
If an investigation is ordered, the government may direct longer preservation.
Who Is Responsible for Maintaining Books?
According to section 128(6) of the companies act, 2013, the responsibility to maintain books of account lies with senior management of the company, such as:
- Managing Director
- Whole-Time Director (in charge of finance)
- Chief Financial Officer
- Any other person assigned by the Board
In practice, this ensures accountability at the top level rather than blaming junior staff.
Penalty for Non-Compliance
If the responsible persons fail to comply with the provisions of Section 128 of the Companies Act, 2013:
- A fine of minimum ₹50,000
- Which may go up to ₹5,00,000
can be imposed for each offence.
Conclusion
Books of account form the foundation of a company’s financial reporting in India. Section 128 of the Companies Act, 2013 clearly explains what records must be kept, where they should be kept, how branches are handled, and who is responsible.
For beginners, understanding this concept helps build clarity about how companies track money and comply with the law. A good next step is to learn how financial statements are prepared from these books.
Frequently Asked Questions About Books of Account Under Companies Act, 2013
If you are new to company law or corporate accounting, these FAQs are meant for you.
These FAQs cover both basic doubts and slightly deeper, real-life questions that many beginners usually ask when they first try to understand books of account under the Companies Act, 2013.
Why does the Companies Act make it compulsory to maintain books of account?
Because books of account show the real financial condition of a company. They help in preparing financial statements, audits, and legal filings.
Without proper books, a company cannot reliably show profit, loss, or financial position.
Are books of account the same as financial statements?
No, they are different.
Books of account are detailed day-to-day records, while financial statements such as balance sheet, income statement, cash flows, statement of equity and notes to accounts are yearly summaries prepared from those records.
Think of books as raw data and financial statements as the final report.
What does “accrual basis” mean in books of account?
Accrual basis means recording income and expenses when they arise, not when cash is actually paid or received.
For example, if salary is due in March but paid in April, it is recorded in March. This gives a more accurate picture of business performance.
Is it compulsory to keep books of account at the registered office?
Usually yes.
However, the Board of Directors can decide to keep them at another place in India. If they do so, the company must inform the Registrar of Companies within 7 days.
Do branch offices also need to maintain books of account?
Yes.
Every branch office must maintain its own books for transactions done at that branch. The branch then sends summarized information periodically to the registered office.
Can companies maintain books of account in electronic form?
Yes, electronic maintenance is allowed. However, records must remain accessible in India and should not be altered.
From April 2023, accounting software must also maintain a proper audit trail.
What is an audit trail and why is it important?
An audit trail is a record of every change made in accounting data, along with the date and details. It helps track who changed what and when. This increases transparency and reduces chances of manipulation.
For how many years must books of account be preserved?
Books of account must be preserved for at least eight financial years. If a company is younger than eight years, all its past records must be kept.
In case of investigation, records may need to be kept longer.
Who is responsible if books of account are not properly maintained?
Senior officers like the Managing Director, Whole-Time Director (Finance), CFO, or any person assigned by the Board are responsible.
Penalties can be imposed on them personally for non-compliance.
Once you understand books of account, it becomes much easier to learn related topics like financial statements, audits, book value, and company compliance. These concepts are closely connected and build on each other step by step.
Reference for Further Study
For deeper study, you may consult the following provisions of the Companies Act, 2013:
- Section 128 – BOOKS OF ACCOUNTS
- Section 2(12) – Definition of “Book and paper” and “Book or paper”
- Section 2(13) – Definition of Books of Account
- Section 2(40) – Definition of Financial Statement
- Section 2(41) – Definition of Financial Year
- Section 2(14) – Branch Office
Additionally, refer to the Companies (Accounts) Rules, 2014 for detailed compliance requirements.
