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 :-
(a) all sums of money received and expended by the company and the matters in respect of which the respect of which the receipt and expenditure took place;
(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.
The books of accounts must comply with the following conditions :-
The books must give a true and fair view of the state of affairs of the company or the branch office, if any, and explain its transaction.
The books must be kept on accrual basis and according to double entry system of accounting.
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 Government.
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).