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CMA Foundation · Fundamentals of Financial and Cost Accounting · Four Frameworks of Accounting and Forms of Organization

A company's books are required to be kept under the Companies Act, 2013 on the accrual basis and by the double entry system. Which statement about this requirement is correct?

Under the Companies Act, 2013, a company must keep its books of account on the accrual basis and by the double entry system. Neither small turnover nor the consent of directors or auditors allows a company to switch to cash basis accounting.

  1. AA company may keep books on the cash basis if its turnover is small
  2. BBooks of account must be kept on the accrual basis and by the double entry systemCorrect
  3. COnly the double entry system is required; the basis of accounting is left to the directors
  4. DBooks may be kept on any basis if the auditor agrees

Explanation

The Act requires companies to maintain books on the accrual basis and by the double entry system, with no exception for small turnover and no discretion for directors or auditors. The cash basis is therefore not permitted for companies, which makes the other statements incorrect.

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