Cash basis does not mean single-entry books
Section 34(1) of the LLP Act requires proper books for each year of existence, on cash or accrual basis and according to double entry, maintained at the registered office for the prescribed period. Choosing cash basis does not authorise a bank-only list without corresponding account effects. This article addresses book integrity and the statement-preparation evidence, checked on 27 October 2026. It does not determine audit exemption, tax accounting or annual filing extensions. LLP Act, 2008: section 34.
Record the basis and reconcile it consistently
Document whether the LLP books use cash or accrual accounting and apply the selected basis consistently to the transactions being reported. A cash-basis result and an accrual-basis result may differ legitimately; an unexplained mixture cannot be defended by pointing to the Act’s alternative bases. Prepare a bridge for amounts invoiced, collected, incurred and paid. Other applicable reporting or tax requirements must be considered separately rather than assuming that an LLP Act option binds every other statute. LLP Act, 2008: section 34.
Separate contributions, borrowings and operating receipts
Partner contributions are not operating revenue merely because they arrive in the bank. Identify loans, drawings, settlements and capital movements separately. Reconcile bank and cash balances to the double-entry ledger, and reconcile partner balances to agreements and transactions. A balanced trial balance proves arithmetic agreement, not that the receipt was classified correctly or that the money exists. Investigate suspense accounts instead of treating them as a permanent balancing device.
Keep the registered-office records usable
Maintain the books and the underlying evidence so the registered-office requirement can be demonstrated. Document custody, access, backups and the person responsible for producing records. An external accountant’s file should not be the LLP’s only practical means of understanding its accounts. Do not describe an arbitrary retention period as sufficient: section 34 refers to the prescribed period, and litigation, tax and other preservation duties require their own review before any destruction. LLP Act, 2008: section 34.
Distinguish preparing the statement from filing it
Section 34(2) requires preparation of the Statement of Account and Solvency within six months from the financial-year end, as at the last day of that year, signed by designated partners. Filing under subsection (3) follows the prescribed form, time and fee; the preparation period is not a substitute for checking that filing requirement. The solvency conclusion needs an evidence-based consideration of liabilities and resources, not just a positive bank balance. Do not infer audit exemption from the absence of transactions.
Build a closing file that a designated partner can explain
Keep the basis memo, final trial balance, bank reconciliations, debtor/creditor evidence where relevant, contribution and loan schedules, commitments, and the signed statement. Record unresolved differences and their correction before approval. If a prior-period opening figure differs from the approved closing figure, reconcile the reason and authorisation rather than forcing a current expense. The worked examples are accounting controls on stated assumptions, not a complete prescribed statement format or tax computation. LLP Act, 2008: section 34.
Applicable primary references
Six worked illustrations
All facts and amounts below are fictional. Assumptions describe the model, not additional statutory rules.
Illustrative example 1: Cash versus accrual revenue
Services earned are ₹10,00,000 and collections against them are ₹7,00,000, with no opening receivables. Under the stated simple model accrual revenue is ₹10,00,000 and cash-basis receipts ₹7,00,000; the bridge is ₹3,00,000. The selected basis must be identified.
Illustrative example 2: Expense timing bridge
Current service costs incurred are ₹4,00,000 and paid ₹2,50,000, with no opening liabilities. The accrual expense exceeds the cash payment by ₹1,50,000. This does not decide the tax deduction year.
Illustrative example 3: Contribution is not turnover
Bank receipts comprise customer collections ₹8,00,000 and partner contribution ₹2,00,000. Total receipts are ₹10,00,000, but customer collections remain ₹8,00,000; classifying all receipts as revenue overstates that figure by ₹2,00,000.
Illustrative example 4: Partner balance roll-forward
Opening contribution/current balance ₹5,00,000 plus agreed credited profit ₹1,20,000 less drawings ₹80,000 closes at ₹5,40,000, assuming these are the only movements and the classification follows the agreement.
Illustrative example 5: Bank reconciliation
Ledger bank balance is ₹3,00,000. Unpresented issued cheques ₹40,000 and deposits not yet credited ₹10,000 explain a statement balance of ₹3,30,000: ₹3,00,000 + ₹40,000 − ₹10,000. Investigate any remaining difference.
Illustrative example 6: Balanced but misclassified
A ₹1,00,000 partner loan is incorrectly credited to revenue while bank is correctly debited. Debits and credits still agree by ₹1,00,000, but revenue is overstated and the loan omitted by that same amount. Trial-balance agreement alone misses the error.
Ten-step verification table
| Step | Action | Evidence |
|---|---|---|
| 1 | Confirm the reporting year | LLP financial-year and opening evidence. |
| 2 | Document the accounting basis | Cash/accrual policy and consistency review. |
| 3 | Test double-entry integrity | Balanced ledger and journal support. |
| 4 | Reconcile bank and cash | Statements, outstanding items and confirmations. |
| 5 | Classify partner funding | Contribution, loans and drawings separately. |
| 6 | Reconcile basis differences | Receipts, invoices, costs and payments. |
| 7 | Establish registered-office access | Custody, retrieval and responsible person. |
| 8 | Review liabilities and solvency | Known obligations, resources and supporting assumptions. |
| 9 | Prepare and sign the statement | Section 34(2) timing and designated-partner signatures. |
| 10 | Check separate filing and preservation duties | Applicable current rules, acknowledgements and retention controls. |
Sixteen practitioner FAQs
1. Can an LLP choose cash basis under section 34?
The section permits cash or accrual basis, alongside its other requirements.
2. Does cash basis permit single entry?
No. The double-entry requirement remains.
3. Is a bank statement the complete book system?
It does not by itself provide all the required accounting records.
4. Does a balanced trial balance prove correct classification?
No. Misclassified credits can still balance.
5. Are partner contributions revenue?
Do not classify funding as turnover merely because it is received in the bank.
6. Are partner loans always contributions?
No. Establish the legal and accounting nature separately.
7. Can the basis vary silently between accounts?
Document and reconcile the policy; avoid an unexplained hybrid.
8. Does the LLP accounting choice settle income tax?
No. Test the applicable tax requirements independently.
9. Where does section 34 require books to be maintained?
At the registered office, subject to the applicable prescribed requirements.
10. Can the accountant alone control all access?
The LLP should maintain usable custody and access evidence.
11. What is the six-month requirement?
It concerns preparation of the Statement of Account and Solvency under subsection (2).
12. Is that also the complete filing deadline rule?
No. Subsection (3) refers to the prescribed filing requirements.
13. Who signs the statement?
The designated partners, as required by section 34(2).
14. Does a positive bank balance prove solvency?
No. Consider liabilities and resources using relevant evidence.
15. Does inactivity automatically remove audit obligations?
Do not infer exemption; assess the applicable rules separately.
16. Should old records be destroyed using this article alone?
No. Check the prescribed period and all continuing preservation duties first.
Conclusion
Reconcile LLP books on the documented accounting basis, preserve double-entry integrity and build registered-office evidence for the Statement of Account and Solvency.