Accounting and Bookeeping

LLPs and Companies mandatorily required to properly keep Books of Accounts duly Audited annually. Assessing Officers can summarilycall for them for scrutiny. Inspectors may examine them as watchdogs for partners/shareholders. They are also resources for critical data in decision making and action. Our comprehensive services address everyissue connected with Accounting & Bookkeeping.

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  • Customised Management Reporting/Shareholders Report/AGM
  • Auditing
  • Handling Scrutiny

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FAQ’S

Maintaining books of accounts is mandatory not just for a company or large corporation. Depending upon the scale of business, most shops and almost all professionals must keep these under Income Tax Law.

It used to be that professionals,whose gross receipts crossed Rs.1,20,000 in any of the earlier 3 years,had to maintain such books and even those starting afresh but likely to cross this figure. The principal criteria governing what and how many books to keep is that they should be adequate forthe Assessing Officer’s scrutiny. From the assessment year 2018-2019 this limit has been increased to Rs. 2,50,000.There are other stipulations as well. Professionals come under the purview of Section 44 AA and Rule 6F.

There are two main books of accounts: the Journal and the Ledger.

Journal: Bookkeeping begins with recording every accounting transaction in the Journal in chronological order. Such journal entries may be categorised.

Ledger: This is an extension of the Journal where journal entries are now posted under different heads in its general ledger account.


The two are linked through Folio Numbers. As a journal entry is being posted in the Ledger it is given a “JF” number and vice versa. Typically Journals have five columns, while ledgers in statement format have six - "date," "description," "journal (folio) number," "debit," "credit," and "balance."

While explanations and notes may feature in Journals, these are not part of Ledgers where it is just the amount that is entered under the relevant head. Ledgers thus, simply track revenue inflow and outflow under different heads such as Sales or Wages or Maintenance, or the Cash Book; Inventory; Receivables and so on.

Ledgers are therefore not only useful sources of information for management but alsoin preparing Balance Sheets and Income (Profit & Loss) Statements.

The Balance Sheet is a statement that presents the Assets, Liabilities and Capital in a business at a given point in time.

Revenue vs Income

People often use the terms "revenue" and "income" interchangeably. While both refer to positive incoming cash flow, they are not the same.

Revenue is the funds that flow in the sale of goods or services. The involved costs such as production costs, overheads and selling costs are not included.

Net income is what is left after deduction of such costs from revenue and also includes taxes, interest and depreciation. It may be either Profit or Loss. The Income Statement therefore starts with Revenue at the very top and then a listing of costs and expenditure, to arrive at the bottom line: the profit or the loss.

Revenue Accounts

In small businesses, it`s relatively simple to track revenue. With businesses of greater complexity such as corporations operating at multiple locations, keeping track of revenue can become a challenge. Especially if the revenue streams are many – such as numerous product lines, fresh services, rental of owned property or sublets, royalty fees or interest on funds parked in banks.

All such earnings need to be accurately reported in books of accounts, and so the need for maintaining revenue accounts.

The Importance of Revenue Accounts

Aside from Tax mandate considerations, a company is revenue accounts reflect its financial strength. Besides net profit, revenue is the most important metric that measures business performance and profitability, sales trends, customer preferences and much more.

Businesses can use revenue and expense accounts data to determine ratios such as the cost of customer acquisition and how much each customer is worth. This data and its analysis is essential for any kind of financial forecast. Analysis of this data can identify patterns in customer behavior and guidance for tactics and strategy.

  • Periodic Management Report

    Unless the business is very small, such reports are vital for management especially if the business has many branches at different locations. To give an example: such a report can help to decide about whether toincrease or decrease prices, whether to advertise or introduce new products (or discard obsolete ones). Such reports can also lead to initiating changes in employee policy.

    The services of an expert accountancy consultantare likely to be invaluable to furnish the right reports at the right time and flag correctiveaction.

Revenue Recognition

From company to company revenue can flow in different forms and the method of accounting should be suitably adapted. For example:whether it should be cash-basis accounting or an accrual method to record revenue. An apparel outlet, for instance, should opt for the sales-basis method. A real estate developer, on the other hand, should opt for the installment method (the percentage-of-completion method) of revenue recognition. Correct selection of method is required to avoid overstating or understating both revenue and profits.

Types of Revenue Accounts

The two main categories of revenue streams are:

  • Non-operating revenues:
    • Derived from secondary business activities, such as rent, interest, or fees.
  • Operating Revenues:
    • Derived from primary business activities, such as the sale of goods or services.




Frequently Asked Questions (FAQ)

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Tax authoritiesdemand that books of accounts be on hand for the minimum of six years. Government auditors can examine your transactions from firsthand sources anytime they feel the need to during this period. After that it is your call to get rid of those that are more than six years old without penalty.

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There are two basic types of accounting as under: Cash-basis accounting: Suitable for small-businesses such as a shop, it records transactions as soon as they occur. It implies that that most transactions do not involve credit. Accrual accounting: is more suitable for large companies, when earnings are recorded at the time of delivering a product or service itself, whether or not payment has been received. Thus an invoice is issued to the purchaser even though credit has been extended.

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While earnings are recorded as a credit in your revenue accounts, there may be discounts given or deductions at the time payments are made by customers. Such reductions in actual earnings from a transaction are called contra revenue and are recorded as a debit entry. Returns of goods purchased, is in the same category but the practice is to record their sales value in a sales returns account.For any discounts against defective products the practice is to record the same in sales allowances. Contra revenue accounts are listed under revenue accounts on a company is income statement as they reflect upon profit. They should also be flags for management action.

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Under the provisions of section 44AA, a penalty of Rs. 25,000 is liable to be levied under section 271A. There is a lot more to bookkeeping than merely posting records. Tax laws are intricate and can impose penalties and tie up businesses in wasteful effort; but they also have many allowances and helpful provisions.Agencies providing Accounting & Bookkeeping Serviceshave both experience and expertise in the proper maintenanceof Books of Accounts – so that these are audit-worthy and pass the taxman’s scrutiny. If matters go further they will handle the taxman. Finally, they will crunch numbers for the client in their role of financial consultant and even present optimum solutions.

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