What is meant by Calls in Arrears?

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Q. What is meant by Calls in Arrears?

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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 refers to the amount called up by the company on its shares that has not been paid by the shareholder on or before the due date fixed for payment.

When a company makes a call (e.g., the first call or final call), shareholders are required to pay the specified amount by a given date. If a shareholder fails to pay, that unpaid amount becomes "in arrears." The company records this amount on the liabilities side of the Balance Sheet as a deduction from the called-up capital.

Note

Calls in Arrears is shown as a negative item under "Share Capital" in the Equity & Liabilities section of the Balance Sheet. It reduces the total paid-up capital.

Journal Entry (when a call is due but not received):

Particulars	Debit (₹)	Credit (₹)
Calls in Arrears A/c Dr.	50,000
To Shareholders (or respective Call) A/c		50,000
(Being the amount due on calls not received)

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Calls in Arrears is the amount called up by a company on its shares but not yet paid by the shareholder. It is shown as a deduction from the called-up capital on the liabilities side of the Balance Sheet.

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 the amount due on a call on or before the due date, that unpaid amount becomes Calls in Arrears.

Why the treatment is what it is:

The company has a legal right to receive this money from the shareholder. Until it is received, the amount is an asset (a receivable) from the company's perspective.
However, in company accounts, share capital is shown at the called-up amount (the total amount the company has demanded from shareholders). The unpaid portion cannot be shown as part of the paid-up capital.
Therefore, Calls in Arrears is not shown as an asset. Instead, it is deducted from the called-up capital on the liabilities side of the Balance Sheet. This gives the true figure of paid-up capital.

Journal Entry (when a call is not paid):

Particulars	L.F.	Debit (₹)	Credit (₹)
Calls in Arrears A/c	Dr.	[Amount unpaid]
To Share Call A/c (e.g., First Call A/c)			[Amount unpaid]
(Being amount due on calls not received)

Ledger Posting:

Calls in Arrears A/c is debited (it is a personal account representing the defaulting shareholder).
The respective Share Call A/c is credited (to close the call account as the amount is not received).

Balance Sheet Presentation (Extract):

Particulars	Note No.	Amount (₹)
EQUITY AND LIABILITIES

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Q.What is meant by Calls in Arrears?

Concept and Accounting Treatment

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