Q – What are the things to be maintained in books of accounts?
Ans – Books of accounts constitute of  Journal, Ledger book, Trial Balance, Original and carbon copies of bills/invoices/receipts /, Cash Book, Profit and Loss A/c, Balance Sheet and Cash Flow Statements.

Q- Is it a requirement to maintain books of accounts under the Income Tax Provisions, or Company Law Provisions or for that matter provision related to LLPs?
Ans- Companies and LLPs are required to maintain books of accounts as mandated by their governing statute, namely Companies Act, 1956 and LLP Act, 2008. Further, Income tax also casts an obligation to maintain books of accounts, irrespective of the form of business, and has separate provisions related to it. Thus, there may be a situation where a private limited company is required to comply with provisions of Companies Act and Income Tax as well.

Q- If I’m recording all my transactions (incomes, expenses, purchase, sales, etc) in an excel sheet and keeping records of bank accounts/pay slips/vouchers, am I accounting all my transactions?
Ans- Yes, you are going in the right track as you are preparing a part of Books of Accounts. But it does not cover all your transactions, so in order to keep records of all the transaction you need to maintain additional books of accounts like Journal, Ledger, Trial Balance, Cash Book, P&L A/c, Balance Sheet and Cash flow Statements in commonly accepted accounting software, such as Tally or Oracle.

Q-    If I maintain accounts via a professional firm, is it mandatory for me to get accounts audited? If yes, what is the frequency of audit?
Ans- Maintaining or not maintaining books by outsourcing it to a professional firm does not determine whether you need to undergo audit or not. Furthermore, audits are of different types-internal audit, cost audit, tax audit and statutory audit. Each audit has its own statutory requirements, thresholds of being conducted with relevant deadlines and due dates.

Q- Is there any difference between accounting and accounting standards?
Ans- If accounting is the product, accounting standards are its prescription. Accounting standards are enacted and published by The Institute of Chartered Accountants of India, meant to be followed by businesses for true and fair view of their activities. All accounting standards are not mandatory for all forms of businesses. Simply put, bigger is your business, more are the accounting standards which needs to be followed.

Q-Do I have the option of not maintaining accounts if I’m incurring losses in the initial phases?
Ans- No, you don’t have that option since you need to maintain accounts mandatory whether you are incurring losses or earning profits. Not earning revenue cannot be an excuse to non-maintenance of books. In fact, as long as you are entering into transactions, you need to account for the same. The interesting thing is that if you maintain accounts in the years of losses, and file tax returns for the same, you get the benefit of setting off losses in the years of profit generation.

Q- Can I have the option of accounting my transactions manually or is it obligatory to get it done by any dedicated software?
Yes, you have an option of accounting your transaction manually. It is not at all obligatory to get it done by any dedicated software. But it’s always advisable to maintain accounts on dedicated software to eliminate any errors or miscalculations.

Q-I am a salaried individual in a MNC and a director in a family owned business. Can I account for the ‘transactions made in employee capacity by me’ and ‘for the business as a director’ in the same books of accounts?
Ans-No. An individual and a business are two completely separate legal entities. Though you may be a major stakeholder of the business, you cannot mix your own account with the accounts of the business. It has to be made very clear that once you transfer anything owned by you in the name of the business, it will from then onwards be treated as property of the business. Hence, separate accounts have to be maintained for individuals and businesses. Its a prudent practise to maintain separate bank accounts also, in order to ensure transparency and flexibility.

It takes perseverance and passion to get to the point you’re at. However, as you know, business ownership is a constant flood of satisfying milestones coupled with expanding to-do lists. With your launch, you’ll need to get on top of the accounting tasks that come along with owning a store. This list of 10 small business accounting steps will give you the confidence to know you’ve covered your bases, and are ready to move on to the next item on your business to-do list!

Startups need to keep an eye on points enumerated below:

Choose business entity which suits you best – Keep Business Separate

The most common mistake founders of Startups commit is to mix their personal finances with that of their businesses. This results in erosion of their personal finances and also shows screwed financials for the Startup.  The business should be carried out under a distinct business entity, facilitating measurability of the financial performance of the business.
The startups should select the business entity which suits best taking into consideration nature of business, objectivity of the founders, scale of operations, degree of control desired by the owner, amount of capital required and sources of funding.
Startups should look to form sole proprietorship or general partnership only if they plan to run medium scale operations covering a particular geographic area or are planning to fund their start-up fully from their own funds. Otherwise, a private limited company or a limited liability partnership should be preferred.
Here, it is pertinent to note that, investors prefer a private limited company form of business for investing for concept of limited liability and also because of operational transparency.

Account all expenses and revenue – Proper Accounting

Startups should employ effective accounting methodology to account all expenses, revenue and other financial transactions of the business in order to build trust in minds of investors and other stakeholders with regard to true and fair view of financial affairs of the business.
Moreover it develops a sense of confidence among customers and suppliers to deal with the business and also helps to enhance credibility in banks and financial institutions with regard to sanctioning financial assistance.
Another point which is worth mentioning here is that proper accounting facilities budget comparisons.  For example, a periodical summary of all known costs, over time, will indicate the revenue necessary to support these costs, which will also suggest the financial viability of the business.

Central as well as state specific approvals should be in place

Businesses are required to obtain number of approvals from central as well as state authorities before they actually commence the business operations. These registrations would normally depend on the nature of business and the state in which the business proposed to be set-up.
These would typically include PAN/TAN registrations, approval from Reserve bank of India, Import Export approval, VAT Registration, The Shops & Establishment Act, Professional tax, Central Excise and Custom Duty, Goods and Service Tax,   Employees’ Provident Fund Organization, Trade Licenses and such other registrations.
It is always advisable to get in place these approvals before the commencement of the business as non-compliance would attract strict penalty from the central as well as state government authorities which a small business cannot afford.   It is obvious to state that adherence to these would entail smooth running of the business.

Periodical Compliances are necessary

Businesses in compliance with requisite provisions of law bestows higher credibility and confidence in the minds of all partners, be it their investors, customers or employees, apart from ensuring smooth business operations and peace of mind.
Startups should not have the perception that tax return is to be filed only when their business makes profit. It is very obvious that the break-even period might run into two financial years. It is mandatory to file tax returns in order to claim and carry forward genuine business losses with objective of setting it off with future profits.
Some basic Income Tax provisions to be complied are filing of tax returns on time, TDS compliances such as deduction, payment and filing of TDS and getting books of accounts audited, if mandates.
Company Law compliances includes filing of necessary forms with the Ministry of Corporate Affairs either on a periodical basis or upon the occurrence of any change in event like change in registered office, alteration of memorandum and articles of association of the company, change in composition of the Board of Directors. These small issues require stringent compliances and any failure may lead to heavy penalties and litigation in future, which may bring the business into standstill.

To Conclude

Founders of Startups find it difficult to focus on issues related to accounting and taxation as they have other critical front office issues to handle as well.  The idea is to have a plan to handle day to day accounting and taxation compliances.  Startups should look to have their own in-house team taking care of these issues or can outsource to professionals till the time they don’t have the requisite infra-structure to handle themselves.