A company is a voluntary group of people who contribute money for a common purpose that may be profit or non-profit in nature. It is a separate legal entity. The money thus contributed, is called the share capital of the company and the contributors are called the investors or the shareholders. Indian Companies Act, 2013 administers all companies and provides guidelines for them to follow.

Coming to the company accounts, they are a condensed form of a company’s financial activity over a period. They are generally prepared for companies every year and consist of financial statements like Balance Sheet, the Profit and Loss Statement, and the Cash Flow Statement. The shareholders’ payment is shown in calls in advance meaning the payment is made well in advance.

The amount received in excess by the company needs to be credited to calls in advance account. If the company is authorised by its articles it may accept call in advance from the shareholders. 

The image below helps to understand the concept better.

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Calls in Arrears in Balance Sheet 

Calls in Arrears Account appears in the Notes to Accounts on Share Capital to the Balance Sheet. It is shown as a deduction from the amount of Subscribed but not fully paid-up under Subscribed Capital’. The amount is called paid-up capital. Though the interest is chargeable in calls in arrears, according to the provisions of the Articles of the company, the directors of the company do have the right to waive off the interest on calls in arrears.

Calls in Advance in Balance Sheet

The meaning of calls in advance is that the excess amount received by the company than what has been called up. They appear separately, in the Balance Sheet as the company’s liability. The company retains such amount to make the shares fully paid. Once this amount is transferred to the relevant accounts the calls in advance account is closed.

It comes under the heading Current Liabilities till the calls are made and the amount becomes payable by the shareholder.

Calls in Arrears Journal Entry

In case of any default, the amount is called as Calls in arrears and a separate Calls in Arrears Account has to be opened, to make the call in arrears entry. An interest of 5% p.a. is charged on all such calls in arrears until the amount is repaid. And, finally, the total is brought to the balance sheet as a deduction from the Called up Capital.

Call in Advance Journal Entry

At times, the company’s shareholder pays a portion or full of the amount due on the shares held in advance. It is an important fact that calls in advance never forms a part of the share capital, even though it is being paid by the shareholders. An authorized company can accept calls in advance from its shareholders but the amount of call in advance in the journal entry cannot be credited to the capital amount. Call in advance amount needs to be credited to the calls in the advance account. 

Interest on Calls in Advance

The amount received as calls in advance is written as a liability and the company is liable to pay interest from the date of receipt till the date that the call gets due for payment. A rate of 6% p.a. interest is charged on this calls in advance meaning the articles of the company authorizes for the same. This interest has to be paid to the shareholder even when the company does not earn the profit.

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