Most of the companies are managed and controlled by the Companies Act, 1956. Hence, all businesses must follow and abide by the rule of the Act that commands the maintaining of accounts.
The Companies Act demands each firm to prepare yearly Income and Expenditure Account, Profit and Loss Account and Balance Sheet at the end of the fiscal year. In this process, the final accounts of company comprise of Profit and Loss Account, Trading Account, Balance Sheet and Profit and loss Appropriation Account.
However, the Act does not define in which format the Profit and Loss Account should be prepared. But all data that shows a genuine and clear view of the company’s progress and operation should be disclosed in Profit and Loss Account.
The period to which the accounts relate is known as the financial year of it may be less than, equal to or greater than 12 months but cannot exceed the 18 months.
Under Companies Act, section 210 administers the composition of the final account of a Company. From the date of inception, within 18 months, the board of directors of the firm conducts a general meeting. This meeting is usually organized to check the Profit and Loss Account and Balance Sheet of the company once a year.
In terms of a non-profit firm, an Income and Expenditure Account should be submitted in the meeting. The time when an account is prepared is known as the financial year, it could be after twelve-month or less than that, but should not exceed 15 months. Sometimes, it might grant special permission and increase to 18 months.
Section 211 indicates the guidelines for the Balance Sheet and of the Profit and Loss Account contents to be fair and accurate. In this situation, if any member of the company fails to perform his duty and take a reasonable step with the company’s previsions then he will be punished. The punishment can be six months of imprisonment or a fine of Rs. 1,000 or both. However, the person will only be penalized if he has committed the offense willfully.
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