Company Law and Practice · Accounts and Auditors

Books of Account and Financial Statements under Companies Act, 2013

Updated 11 October 2026 · Fact-checked

Section 128 requires every company to keep books of account at its registered office on the accrual basis and double entry system. Section 129 requires financial statements that give a true and fair view, comply with notified accounting standards, follow Schedule III, and are laid before the AGM. Answer by stating the provision, applying facts, then concluding.

Understand Books of Account and Financial Statements

A company is a separate legal person. Its members and the public cannot see every transaction, so the law forces it to record them. Section 128 deals with books of account, the day-to-day records. Section 129 deals with financial statements, the summary prepared from those books.

Under Section 128(1), every company keeps books of account, other relevant books and papers, and financial statements for every financial year. They must give a true and fair view of the state of affairs, including that of branches, and explain transactions at the registered office and branches. They must be kept on the accrual basis and the double entry system.

The books are kept at the registered office. The Board may decide on another place in India. If it does, the company must file a written notice with the Registrar within seven days, giving the full address. Books may also be kept in electronic mode in the prescribed manner. For a branch in India or outside, the company is deemed to comply if proper books of the branch are kept at the branch and proper summarised returns are sent periodically to the registered office or the other place.

Section 129 then sets the standard for the financial statements. They must give a true and fair view, comply with the accounting standards notified under Section 133, and follow the form in Schedule III. The Board lays them before every AGM. If the company has subsidiaries, it also prepares consolidated financial statements, laid before the AGM with its own, and attaches a statement of salient features of the subsidiaries.

The law also protects the records. Directors can inspect the books, books must be preserved for eight years, and penalties apply for default. Questions usually test these details, so learn the conditions exactly.

Key rules to remember

Section 128(1): what to keep and how: Books of account + other relevant books and papers + financial statement; accrual basis; double entry system; at registered office; Must give a true and fair view and cover branches. Electronic mode is allowed in the prescribed manner.
Section 128(1) first proviso: other place in India: Board decision → notice to Registrar within 7 days with full address; The other place must be in India.
Section 128(2): branch books: Branch books at branch + periodic summarised returns to registered office (or other place); Applies to branches in India or outside India. The company is then deemed to comply.
Section 128(3): inspection: Any director may inspect during business hours; For a subsidiary, inspection only by a person authorised by a Board resolution. Financial information kept outside India: copies must be maintained and produced.
Section 128(5): preservation: Books for not less than 8 financial years immediately preceding, with vouchers; If the company is younger than 8 years, all preceding years. Central Government may direct a longer period where an investigation is ordered under Chapter XIV.
Section 128(6): penalty: Fine: not less than ₹50,000, may extend to ₹5,00,000; Imposed on the managing director, whole-time director in charge of finance, CFO or other person charged by the Board. Imprisonment was omitted from this section from 21 December 2020.
Section 129(1): financial statements: True and fair view + comply with accounting standards under Section 133 + Schedule III form; Insurance, banking and electricity companies, and companies under an Act with its own form, are excluded from the Schedule III requirement.
Section 129(2) and (3): Board lays financial statements at every AGM; consolidated statements if one or more subsidiaries; Attach a separate statement of salient features of subsidiaries in the prescribed form.
Section 129(5): deviation: Disclose deviation + reasons + financial effects; Needed where the statements do not comply with accounting standards.
Section 129(7): penalty: Imprisonment up to 1 year or fine ₹50,000 to ₹5,00,000, or both; Falls on the managing director, whole-time director in charge of finance, CFO or person charged by the Board; if none of them, all the directors.

How to solve Books of Account and Financial Statements questions

Use this method for any question on books of account or financial statements. It matches the ICSI style: provision, facts, conclusion.

1Identify whether the question is about books of account (Section 128) or financial statements (Section 129). Some questions mix both.
2State the rule in plain words with its section number, for example that books are kept at the registered office on accrual basis and double entry system.
3Pick out the facts that matter: place of keeping, branch, subsidiary, years involved, who is in default, or whether accounting standards were followed.
4Apply each condition to the facts. For example, check whether the Board decided on another place and whether the notice reached the Registrar within seven days.
5Check the exceptions: electronic mode, branch deemed compliance, and the classes of company excluded from Schedule III.
6Check the penalty provision and name the persons liable.
7Write a clear conclusion that answers the exact question asked, and cite the section again.

Quickest way: Four-point check: Where, How, How long, Who

When to use it: Use it for short-answer or case-based questions where you have only a few minutes.

Where: registered office, or another place in India with notice to the Registrar within 7 days.
How: accrual basis, double entry, true and fair view; branches covered by summarised returns.
How long: 8 financial years, with vouchers. Longer only if the Central Government directs during an investigation.
Who: officers named in Section 128(6) or Section 129(7) are liable. Then write the conclusion.

Common mistakes in Books of Account and Financial Statements

Saying books may be kept at any place, even outside India.
Students remember that the Board can choose another place and forget the words 'in India'.
Fix: Write 'another place in India' and add the 7-day notice to the Registrar with the full address.
Mixing up the 8-year preservation rule with the 8-year limit for re-opening accounts.
Both use eight years, and Section 130 refers back to Section 128(5).
Fix: Keep them apart. Section 128(5) is about keeping books. Section 130 limits Tribunal or court orders to re-open books to eight preceding financial years.
Saying imprisonment is a punishment for default under Section 128.
Older notes carry the earlier wording, and Section 129(7) still has imprisonment.
Fix: For Section 128(6) write fine of ₹50,000 to ₹5,00,000 only. For Section 129(7) write imprisonment up to one year or fine, or both.
Applying Schedule III to every company without exception.
Students skip the second proviso to Section 129(1).
Fix: Mention that insurance, banking and electricity companies, and others with a form under their own Act, are outside it.
Forgetting consolidated financial statements for companies with subsidiaries.
Students focus on standalone accounts.
Fix: State Section 129(3): a company with one or more subsidiaries prepares consolidated statements too, and attaches a statement of salient features of subsidiaries.
Treating branch books as needing full duplication at the registered office.
Students overlook Section 128(2).
Fix: Say proper branch books at the branch plus periodic summarised returns to the registered office gives deemed compliance.

Worked examples

Example 1

Meridian Textiles Ltd decides to keep its books of account at its factory in Surat instead of its registered office in Mumbai. Advise the company on what it must do. Also state how long it must preserve the books.

Show the solution

Provision: Section 128(1) requires books to be kept at the registered office, but the first proviso lets the Board decide on another place in India.
Facts: Surat is a place in India. A Board decision is needed, so the Board must pass it.
Condition: Within seven days of the decision, the company must file a written notice with the Registrar giving the full address of the Surat place.
Preservation: Under Section 128(5), books relating to not less than eight financial years immediately preceding a financial year must be kept in good order with vouchers. If the company is younger than eight years, all preceding years are covered.
Conclusion: The company may keep the books at Surat if the Board decides so and the notice reaches the Registrar within seven days. It must preserve books for at least eight preceding financial years.

Answer: Yes. The Board may decide to keep the books at Surat, provided it files a written notice with the Registrar within seven days giving the full address. The books must be preserved for not less than eight preceding financial years with vouchers.

Example 2

Kaveri Industries Ltd has two subsidiaries. Its Board lays only the company's own financial statements before the AGM, and the statements deviate from a notified accounting standard without any disclosure. Examine the position under the Companies Act, 2013.

Show the solution

Provision: Section 129(2) requires the Board to lay financial statements before every AGM.
Subsidiaries: Under Section 129(3), a company with one or more subsidiaries must also prepare consolidated financial statements in the same form and manner as its own and lay them before the AGM with its own statements. A separate statement of salient features of the subsidiaries must be attached.
Application: Kaveri has two subsidiaries, so laying only the standalone statements is a contravention.
Deviation: Section 129(1) requires compliance with accounting standards notified under Section 133. If there is a deviation, Section 129(5) requires disclosure of the deviation, the reasons and the financial effects. None was made.
Penalty: Under Section 129(7), the managing director, the whole-time director in charge of finance, the CFO or any other person charged by the Board, and if there is none, all the directors, are punishable with imprisonment up to one year or fine of ₹50,000 to ₹5,00,000, or both.
Conclusion: The company has breached Section 129(3) and Section 129(5). The officers named are liable.

Answer: Kaveri must lay consolidated financial statements along with its own and attach the salient features statement. It must also disclose the deviation, reasons and financial effects. The default attracts imprisonment up to one year or fine of ₹50,000 to ₹5,00,000, or both, on the officers named in Section 129(7).

Exam tips

Learn the numbers exactly: 7 days for the notice, 8 financial years for preservation, ₹50,000 to ₹5,00,000 for the fine.
Always name the persons liable. Examiners expect the managing director, whole-time director in charge of finance, CFO or person charged by the Board.
Keep Section 128 (records) and Section 129 (statements) separate in your answer, then link them in the conclusion.
In case questions, check branches, subsidiaries and electronic records. These are the usual hooks.
Cite the section in the first line and again in the conclusion. It is a cheap way to earn marks.

Practice questions from Accounts and Auditors

Books of Account and Financial Statements in other exams

The same ground in other exams, if you are preparing for more than one or want another angle on it.

Books of Account and Financial Statements: frequently asked questions

Where must a company keep its books of account?

At its registered office. The Board may decide on another place in India. If so, the company must file a written notice with the Registrar within seven days, giving the full address.

Can books of account be kept electronically?

Yes. The second proviso to Section 128(1) allows books and papers in electronic mode in the prescribed manner.

How long must books of account be preserved?

For not less than eight financial years immediately preceding a financial year, with the relevant vouchers. A younger company keeps all preceding years. The Central Government may direct a longer period where an investigation is ordered under Chapter XIV.

Which companies are outside the Schedule III requirement?

Under the second proviso to Section 129(1), insurance and banking companies, companies generating or supplying electricity, and companies governed by an Act that specifies their own form are excluded.

Who can inspect the books of account?

Any director, during business hours, at the registered office or another place in India. For a subsidiary's books, inspection is only by a person authorised by a Board resolution.