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An Overview:

Accounting is the systematic process of recording, analyzing, and interpreting the financial transactions. It is the responsibility of every business – whether large or small to furnish their accounting records to the Income Tax Department. Generally, startups neglect these issues and, after a few years, they are forced to deal with them, plus interest. It’s always a good idea to keep track of your finances and provide information to government organizations to avoid difficulties like raids and fines. Companies are required to update the annual returns regularly.

What is Bookkeeping?

Bookkeeping is the process of recording your company’s financial transactions into organized accounts on a daily basis. For a number of reasons, bookkeeping is an important aspect of your accounting process. Companies can track all information on their books and make key operating, investment, and financing choices with proper bookkeeping.

Individuals who manage a company’s financial data are known as bookkeepers. Companies would not be aware of their current financial situation or internal operations without bookkeepers.

Importance of Bookkeeping

• Proper bookkeeping delivers a reliable measure of a company’s performance
• It also serves as a guide for making general strategic decisions and a benchmark for the company’s revenue and profit targets
• In short, once a company is up and operating, it is necessary to devote more time and resources to preserving accurate records
• Due to the high cost of full-time accountants, many small businesses do not hire them
• Small businesses, on the other hand, are more likely to hire a bookkeeper or outsource the task to a professional agency
• One thing to keep in mind is that many people who want to start a new business forget the necessity of things like keeping track of every penny spent
• It also helps in detecting frauds or bank errors.

Bookkeeping & Accounting Differences

Types of Bookkeeping System

Single-entry bookkeeping and double-entry bookkeeping are the two types of bookkeeping systems that are used to record commercial transactions.

Single-Entry Bookkeeping System:

It allows you to keep track of all of your financial transactions in one place. For small enterprises with little or no transactions, a bookkeeping system is often employed. It is frequently described as a straightforward, practical, and informal method of recording. It usually keeps track of only cash disbursements, cash receives, sales, and purchases. All other accounting records, such as inventory, equipment, capital, and so on, are solely kept in memorandum or notes format.

A daily summary of cash receipts, as well as a monthly summary of cash receipts and disbursements, which reflect revenue and expense, are the books or records kept in a single-entry accounting system.

In contrast to the double-entry bookkeeping system, where one transaction impacts two accounts, a transaction in the single-entry bookkeeping system affects only one account. A cash sale, for example, is solely recorded as a rise in cash receipts or deposits, with no sales account.

However, because it lacks a formal recording system, the simplicity of a single-entry bookkeeping system makes it more subject to error and incompleteness than a double-entry accounting system. Although it is an appropriate technique of record keeping for tax reasons for small and basic firms, it may not provide a reasonable valuation of a business’s key financial information.

Double-Entry Bookkeeping System:

The standard technique of record keeping used by most organizations, bookkeepers, and accountants is the double-entry bookkeeping system.

The technique for double-entry bookkeeping is more extensive and complex than the procedure for single-entry bookkeeping. It introduces the concept of debit and credit, which states that for every transaction, something is received (debit) and something is given up (credit), and that each transaction affects two or more accounts.

The advantage of a double-entry bookkeeping system is that it has a mechanism in place to ensure that business transactions are accurately and completely recorded. It is a dependable source of financial data and a fair assessment of a company’s status or performance.

Benefits of Accounting & Business Compliances to a Business

• Budgeting: It assists organizations in efficiently controlling the company’s income and expenditure while monitoring managerial policies and goals.
• Evaluating the Business’s Performance: Helps in measuring the performance of the business in terms of key measures such as net profit, sales growth, and so on.
• Managing Cash Flow: Keeping track of the money that comes into the business on a regular basis helps in projecting patterns, paying employees and suppliers, repaying debts, etc.
• Financial Information to Investors and Stakeholders: Investors will gain a better understanding of the business’s financial health, including its solvency, creditworthiness, liquidity, stock, and bond issuers.
• Mandatory by law: In India, the Registrar of Companies requires a strict record of income tax payments at the end of the year, failing which companies may face additional taxes or fines.

Documents Required

The documents required will vary depending on the service you require. Our professionals will convey the same to you based on your requirements.

Process of Filing Annual Compliance

The mandatory compliances that most businesses must meet are as follows. At TAXFIN LEGAL, our qualified chartered accountants, accounting and taxation professionals, and company secretaries will handle all of your compliance needs. We offer the best-in-class legal consultation for your company. Our team will cover the following compliance requirements as mandated by the Ministry of Corporate Affairs.

Facilitation of meetings of board of directors:

The first meeting has to be conducted within 30 days of incorporating a business after which four meetings shall be held every quarter in a calendar year. There should not be more than 120 days between two consecutive meetings.

Preparation of the minutes of proceedings of meeting:

Every company needs to file its minutes of the meetings and they shall be preserved permanently to add value in case of any dispute. The meeting minutes are to be maintained at the registered office.

Issuance of share certificates:

The company is required to issue a share certificate to the subscribers of the memorandum within 60 days of incorporation.

Filing of disclosures of directors’ interests and declarations of disqualification:

In the first board meeting, all the directors are required to make disclosures about their interests in other business entities.

Filing declarations of commencement of business with the RoC:

This has to be done upon registration of the company. Form INC 20A mandatorily needs to be filed within 180 days of incorporation.

Facilitation of annual general meetings:

A company shall conduct at least one AGM each year. The first AGM shall be held within nine months from the closing of the first financial year of the company. In other cases, it shall be within six months from the closing of the financial year.

Annual company returns need to be filed with the RoC within 60 days of the conclusion of the AGM.

Quarterly compliance:

Every company has to hold a minimum of four meetings of its board of directors, that is, at least one board meeting every quarter of the calendar year.

Statutory registrations:

All statutory registrations like GST, PF, ESI, IEC, etc. must be completed.