Limited Liability Partnerships
(LLPs) are a popular business structure that combines the benefits of both
partnerships and private limited companies. While LLPs enjoy flexibility in
operations, they are still subject to regulatory compliance, especially in
terms of maintaining proper accounting records. Proper maintenance of
accounting records ensures smooth operations, legal compliance, financial
transparency, and aids in decision-making.
In this article, we will cover the
complete process, best practices, legal requirements, and essential tips on
maintaining accounting records for an LLP.
1.
Legal Requirement for Maintaining Accounting Records
Under the Limited Liability
Partnership Act, 2008 (India), LLPs are legally required to maintain proper
books of account. The main provisions include:
Books of accounts must be maintained on a cash basis or
accrual basis.
Records must be kept at the registered office of the
LLP.
Books of accounts should provide a true and fair view
of the LLP's financial position.
The accounts must be preserved for at least 8 years.
Annual financial statements should be prepared.
Apart from the LLP Act, compliance
with the Income Tax Act, 1961, GST Act, 2017, and other relevant
laws also require maintaining accurate financial records.
2.
Types of Accounting Records Required
To ensure full compliance and better
financial management, an
LLP must maintain the following accounting records:
a)
Cash Book
Records all cash transactions.
Should include cash received and cash paid.
Helps track daily liquidity.
b)
Bank Book
Captures all banking transactions.
All deposits and withdrawals are recorded here.
c)
Sales Register
Details of all invoices raised.
Records both taxable and non-taxable sales.
Required for GST filing and tax computation.
d)
Purchase Register
Records all purchases of goods or services.
Essential for claiming input tax credits under GST.
e)
Journal Entries
Non-cash adjustments such as depreciation, accruals,
and provisions.
f)
Ledger Accounts
Summary of all accounts maintained in the books.
Forms the basis for preparing the trial balance and
financial statements.
g)
Fixed Asset Register
Details of all fixed assets owned by the LLP.
Includes purchase date, depreciation, and current book
value.
h)
Payroll Records
Salary and wages register.
Includes employee details, deductions, TDS, and
provident fund contributions.
i)
Tax Records
Income Tax Returns (ITR), GST Returns, and TDS filings.
Challans and assessment orders.
j)
Supporting Documents
Vouchers, bills, invoices, bank statements, contracts,
and agreements.
LLPs can choose between:
a)
Cash Basis Accounting
Transactions are recorded when cash is received or
paid.
Simpler but may not give an accurate picture of
profitability.
b)
Accrual Basis Accounting
Revenues and expenses are recorded when earned or
incurred, not when cash changes hands.
Provides a more accurate representation of financial
health.
- Recommended for most LLPs, especially those with
significant operations.
With the advent of technology, most
LLPs today maintain digital accounting records using accounting software.
Popular software include:
Tally ERP
Zoho Books
QuickBooks
Busy Accounting
Marg ERP
Benefits
of Digital Accounting:
Reduces manual errors.
Easy tracking of receivables and payables.
Real-time reporting.
Simplifies GST and tax return filings.
Cloud-based solutions allow remote access.
Backup
and Data Security:
Always maintain regular backups of digital records.
- Use secure servers or cloud storage to prevent data
loss.
5.
Periodic Financial Statements
LLPs should prepare and review the
following financial statements regularly:
Profit and Loss Account
Balance Sheet
Cash Flow Statement
Statement of Changes in Partners' Capital
These statements help in analyzing
the financial health of the business and are also required for statutory
filings
a)
Statement of Account & Solvency (Form 8)
Filed with the Registrar of LLPs annually.
Due within 30 days from 6 months after the end of the
financial year.
b)
Annual Return (Form 11)
Contains details of partners and changes therein.
Filed within 60 days from the end of the financial
year.
c)
Income Tax Return
Filed annually by 31st July or 30th September (if audit
applicable).
d)
GST Returns
GSTR-1 and GSTR-3B are to be filed monthly or
quarterly.
Annual GST return (if applicable).
e)
Tax Audit
Applicable if turnover exceeds the prescribed limit
under Income Tax Act.
f)
Other Compliance
TDS returns, professional tax, and other local
compliance as per state laws.
7.
Best Practices for Maintaining Accounting Records
Maintain daily records:
Do not postpone entries to avoid backlogs.
Separate personal and business finances:
LLP accounts should be distinct from partners’
personal accounts.
Reconcile bank accounts monthly:
Ensures accuracy and identifies discrepancies.
Retain original supporting documents:
For audit and verification purposes.
Keep updated on compliance changes:
Laws and tax regulations change often.
Engage a professional accountant or firm:
To ensure accuracy, especially for complex LLPs.
8.
Consequences of Non-Compliance
Failing to maintain proper
accounting records can lead to:
Penalties under LLP Act.
Rejection of tax returns.
Loss of input tax credit under GST.
Difficulty in raising loans or investments.
Problems during statutory audits.
Legal consequences and fines.
9.
Role of Professional Accountants
Even though LLPs enjoy flexibility,
engaging a professional accountant ensures:
Proper classification of transactions.
Accurate preparation of financial statements.
Timely filing of returns.
Compliance with all applicable laws.
Financial advisory for better decision-making.
10.
Conclusion
Maintaining proper accounting
records is not just a statutory obligation but a business necessity for LLPs.
It provides a clear picture of financial performance, helps in compliance with
legal obligations, and supports future business growth. Whether you manage
accounting in-house or hire professionals, adopting a systematic and
disciplined approach will save time, prevent errors, and ensure peace of mind.
With increasing digitization, modern
accounting software makes record-keeping more efficient, accurate, and
transparent, allowing LLP partners to focus on business growth while staying
compliant.
Created & Posted by Kartar
GST Expert at TAXAJ
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