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Proprietorship - Management & Accounts
Management
Sole Proprietor is one man show, where the owner is the king, he manages the business in the way he wants. All the major and minor business decisions are taken by him, solely. He is solely responsible for running the business.
Accounts & Audit
Books of Accounts
Since the business carried out by sole proprietorship is not regulated by any statute, therefore there are no prescribed books of accounts which are required to be maintained by the business but as per the Income Tax, following types of business if carried on under partnership are required to maintain such books of accounts as would enable the assessing officer to compute the total income of the business in accordance with provisions of Income Tax Act:
- Every person carrying on legal, medical, engineering or architectural profession or the profession of accountancy or technical consultancy or interior decoration or any other profession as is notified by the Board in the Official Gazette
- Every person carrying on business or profession (not being a profession referred to in para a above) shall,
(i) if his income from business or profession exceeds one lakh twenty thousand rupees or his total sales, turnover or gross receipts, as the case may be, in business or profession exceed or exceeds ten lakh rupees in any one of the three years immediately preceding the previous year; or
(ii) where the business or profession is newly set up in any previous year, if his income from business or profession is likely to exceed one lakh twenty thousand rupees or his total sales, turnover or gross receipts, as the case may be, in business or profession are or is likely to exceed ten lakh rupees, during such previous year;
But as per prudent business practice, it is advisable to keep the following books of accounts
- All sums of money received and expended by the business and the matters in respect of which the receipt and expenditure take place;
- All sales and purchases of goods by the business;
- Assets and liabilities of the business;
Method of Accounting
It is advisable that sole proprietorship shall maintain their books of account on accrual basis and the double entry system of accounting. There is no requirement to follow any accounting standard, while preparing the books of accounts
Audit Requirements
Statutory Audit
There is no statutory requirement of audit of books of accounts of sole proprietorship
Tax Audit
Where the total sales, turnover or gross receipts of the business exceed Rs.4 Cr (Rs 1 million in case of profession) in any financial year, than a tax audit report is to be submitted to the tax authorities alongwith the Return of Income of the business.
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