Describe the provisions of law relating to 'Calls in Arrears' and 'Calls in Advance'.

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Q. Describe the provisions of law relating to 'Calls in Arrears' and 'Calls in Advance'.

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Concept understanding — Calls In Arrears

Calls In Arrears – A First Look

Think of buying something on instalments. You order a phone for ₹30,000, pay ₹10,000 now, and promise to pay ₹10,000 next month and ₹10,000 the month after. If you miss the second instalment, you still owe that ₹10,000. That unpaid amount is exactly what Calls In Arrears means in the world of company accounts.

A company issues shares, and shareholders pay for them in stages: Application, Allotment, and then one or more Calls. If a shareholder fails to pay any of these amounts on the due date, that unpaid sum is called Calls In Arrears.

Why It Matters

The company needs that money to run its business. More importantly, the company has a legal right to recover it. The shareholder remains liable. The company can also charge interest on calls in arrears at the rate specified in the Articles of Association (usually 8–12% per annum). If the shareholder still doesn't pay, the company may eventually forfeit the shares.

Accounting Treatment – The Journal Entry

When a shareholder does not pay a call amount, the company does not simply ignore it. It records the amount as a receivable. The rule is:

Debit Calls In Arrears Account (a personal account representing the amount due from shareholders)

Credit the respective Call Account (Share Allotment A/c, Share First Call A/c, etc.)

The journal entry looks like this:

Particulars	Dr. (₹)	Cr. (₹)
Calls In Arrears A/c ………Dr.	xxx
To Share Allotment A/c		xxx
To Share First Call A/c		xxx
(Being the amount due on calls not received)

Later, when the shareholder pays the arrears, the entry is reversed:

Particulars	Dr. (₹)	Cr. (₹)
Bank A/c ………Dr.	xxx
To Calls In Arrears A/c		xxx
(Being the arrears received)

Where It Appears in the Balance Sheet

The Calls In Arrears account is not an expense. It is a deduction from the Subscribed Capital on the Equity and Liabilities side of the Balance Sheet. The NCERT textbook shows it like this:

Subscribed Capital (Subscribed and fully paid-up) \dots\dots\dots ₹ X Less: Calls in Arrears \dots\dots\dots (₹ Y) Subscribed and paid-up capital \dots\dots\dots ₹ (X - Y)

Here is the exact format as per NCERT (Chapter: Accounting for Share Capital):

Particulars	Note No.	Amount (₹)
EQUITY AND LIABILITIES
1. Shareholders' Funds
(a) Share Capital	1	X
2. Non-Current Liabilities
3. Current Liabilities
TOTAL		X

Note 1 – Share Capital:

Particulars	Amount (₹)
Authorised Capital
… shares of ₹ … each	…
Issued Capital
… shares of ₹ … each	…
Subscribed Capital
Subscribed but not fully paid-up	…
Less: Calls in Arrears	(…)
Subscribed and fully paid-up	…

Watch out

Do not show Calls In Arrears as an asset. It is a deduction from capital. Many students mistakenly put it under Current Assets — that is wrong.

Interest on Calls in Arrears …

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Calls in Arrears and Calls in Advance – Legal Provisions

Calls in Arrears arise when a shareholder fails to pay the amount due on a call made by the company. The company may charge interest on arrears at the rate specified in the Articles of Association. If the Articles are silent, the Table F (Schedule I) of the Companies Act, 2013 provides that interest at 8% per annum shall be charged from the due date until payment. The company can also forfeit the shares if the arrears remain unpaid after giving a proper notice.

Calls in Advance occur when a shareholder pays the amount for future calls before they are due. The company may accept such advance payments only if the Articles of Association permit it. If the Articles are silent, the company cannot accept calls in advance. Interest on calls in advance is payable at the rate specified in the Articles; if the Articles are silent, Table F provides interest at 6% per annum from the date of payment until the call becomes due.

Particulars	Calls in Arrears	Calls in Advance
Nature	Amount due but unpaid	Amount paid before due
Interest rate (if Articles silent)	8% p.a. (Table F)	6% p.a. (Table F)

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Calls in Arrears is the amount called up but unpaid by a shareholder; Calls in Advance is the amount received before it is called up. Both are governed by Section 49 of the Companies Act, 2013, and require specific journal entries and ledger accounts.

Concept and Accounting Treatment

When a company issues shares, it often collects the face value in instalments called calls (e.g., application, allotment, first call, final call). If a shareholder fails to pay a call amount on the due date, that unpaid amount becomes Calls in Arrears. Conversely, if a shareholder pays a future call amount before it is due, that excess payment is Calls in Advance.

The accounting logic is straightforward:

Calls in Arrears is a debit balance — it represents money the company is owed. It is shown as a deduction from the called-up capital in the Balance Sheet (under Share Capital).
Calls in Advance is a credit balance — it represents a liability (the company owes the shareholder either shares or a refund). It is shown as a separate current liability in the Balance Sheet.

The Companies Act, 2013 (Section 49) permits calls in advance only if the Articles of Association allow it. Interest is payable on calls in advance (usually 6% p.a. or as per Articles) and is chargeable on calls in arrears (usually 5% p.a. or as per Articles). Interest on calls in arrears is a gain for the company; interest on calls in advance is an expense.

Journal Entries

For Calls in Arrears

Particulars	Debit (₹)	Credit (₹)
Calls in Arrears A/c Dr.	[Amount unpaid]
To Share Capital A/c		[Amount unpaid]
(Being the amount due on calls not received)

Bank A/c Dr.	[Amount received later]
To Calls in Arrears A/c		[Amount received later]
(Being the arrears amount received)

For Calls in Advance

Particulars	Debit (₹)	Credit (₹)
Bank A/c Dr.	[Amount received in advance]
To Calls in Advance A/c		[Amount received in advance]
(Being the call money received in advance)

Calls in Advance A/c Dr.	[Amount adjusted]
To Share Capital A/c		[Amount adjusted]
(Being the advance amount adjusted against the call due)

Ledger Accounts

Calls in Arrears Account

Particulars	Amount (₹)	Particulars	Amount (₹)
To Share Capital A/c	[Amount]	By Bank A/c	[Amount received]
		By Balance c/d	[Balance unpaid]
Total	[Total]	Total	[Total]

Calls in Advance Account

Particulars	Amount (₹)	Particulars	Amount (₹)
To Share Capital A/c	[Amount adjusted]	By Bank A/c	[Amount received]
To Balance c/d	[Balance remaining]
Total	[Total]	Total	[Total]

Balance Sheet Presentation

Extract of Balance Sheet (as at ...) …

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Q.Describe the provisions of law relating to 'Calls in Arrears' and 'Calls in Advance'.

Concept and Accounting Treatment

Journal Entries

For Calls in Arrears

For Calls in Advance

Ledger Accounts

Calls in Arrears Account

Calls in Advance Account

Balance Sheet Presentation

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