Trade books are the registers wherein traders keep a written and minute account of their business transactions. Even non-traders usually keep registers wherein they record their income and their liabilities. But the fundamental difference between the books kept by traders and those kept by non-traders is, at least according to our law, that traders are required to keep them, while non-traders are under no obligation to keep them. Moreover, trade books, if kept according to law, are admissible and constitute evidence of their contents in terms of the law of Civil Procedure. Some laws merely limit themselves to bind the trader to keep those books, which in his opinion and in his discretion he considers would constitute a reasonable and sufficient evidence to show the state of affairs of his business or trade. Other laws, however, like the Maltese Commercial Code, expressly indicate the books which every trader is bound to keep as a minimum. However this may be, the fact remains that the obligation and the duty of traders to keep books is universally recognized and prescribed.

The law lays on traders the duty of keeping books for various reasons:

1. In the interest of traders themselves – trade books provide formal evidence, which at any time traders may use in their favour. Moreover, the books render possible at any time the drawing up of a true and correct picture of the state of affairs of a particular business or trade.

2. In the interest of third parties who may have concluded or are desirous of concluding any commercial transaction with traders. Very often traders not only invest and risk in commercial transactions their own money, but also that which may have been supplied to them by others on credit such as banks, finance houses and creditors. Traders should be in a position to give an account to their creditors of the way in which they have invested the money supplied to them; such information can only be forthcoming from trade books.

3. In the interest of society in general – as a general rule society is not interested in the commercial transactions concluded by traders. However, there is one thing in which it takes particular interest: this is when a trader suspends payments of his debts and is therefore in a state of insolvency. In cases of bankruptcy, society has the duty to ascertain that bankruptcy was not caused by fraudulent acts of the trader concerned. Such important information can, up to a certain extent, only be derived from trade books; and it is from them that one may know whether the trader has acted prudently or otherwise. Bankruptcy itself may constitute in certain circumstances a crime and trade books are the best means which enable society to discover and repress it.

The Commercial Code (article 13) provides that every trader is bound to keep the said books. A contrario sensu, if the person is not a trader, even if he performs isolated acts of trade, he need not keep trade books. Insofar as companies are concerned, article 163 of the Companies Act comes into play and it is the trade books mentioned there which apply and not those found in the Commercial Code.

The obligatory trade books in terms of article 13 of our Commercial Code are: (a) a waste-book;

(b) a journal;
(c) a cash book;
(d) an inventory-book; (e) a ledger.

(a) The Waste-Book (article 14)

The law states that "every trader shall immediately enter in the waste-book every commercial transaction which he makes, showing all the conditions or terms to which it is subject". These details are also entered in the journal and the ledger, and it might appear that the law has imposed on traders a useless burden by requiring them to register the same transaction in 3 different books. On a closer examination of the wording of the law, one notes that in the waste- book the trader is required to note the entry immediately while in the case of the other books, some time can go by before the entry is registered. The registrations in the waste-book represent the first, and therefore the more genuine impression of a concluded transaction.

(b) The Journal (article 15)

"The journal must show day by day all the transaction concluded by the trader, his debts and credits, his negotiations, acceptances and endorsements of bills, and, generally, all that he receives or pays for any cause whatsoever; and must show month by month the sums disbursed for household expenses". The law requires these details because in case of bankruptcy they would enable the Court and the creditors to enquire into the true causes. The journal must contain all transactions, civil and commercial. The law, however, makes an exception with regard to retailers. They are not bound to show all the transactions made for ready cash and are only obliged to enter in their books the total amount of all the sales made on each day. (Article 25)

(c) The Cash Book (article 16)

"The cash-book must show in detail, day by day, all the sums received and those paid out by the trader, compared with the journal; ir must be balanced at least once a month". The cash-book enables the trader to know each day the amount of cash in his possession, but this information would lead the trader nowhere as money is only part of the trader's estate. The fact that a trader has no cash available on a particular day does not mean that his business is not doing well. Some are of the opinion that the cash-book has today lost much of its importance and could easily be struck off the list of obligatory trade books.

(d) The Inventory-Book (article 17)

The law states that here "the trader shall make every year an inventory containing a description and valuation of his whole estate, assets and liabilities, whatever may be their nature and origin." Moreover, "the annual inventory shall be closed with a balance and with a statement showing the profits and losses, and shall be copied out year by year in the aforesaid inventory book". The value of the respective items of the assets and liabilities is to be given and this applies not only to immovables but also to plant, machinery, office equipment, stock, shares and securities. Should the trader's business be exercised in more than one place, the inventory should refer to the whole business and for the same reason the balance sheet and the profit and loss account should be made out in respect of the whole business.

(e) The Ledger (article 18)

"The ledger shall show an accurate and up-to-date record of all transactions classified as personal and impersonal accounts and so kept as to render possible the drawing up of a true and correct picture of the state of affairs of the business or trade at any given time". It is in practice a transcription of all the entries of the journal made in a more scientific way. While in the journal the entries follow the chronological order, in the ledger those same entries are posted in separate accounts, personal and impersonal, according to the nature of each. It helps the trader to know exactly his position at any given time.

Trade books, if kept according to the requirements of the law, shall be evidence of their contents. The parties may produce evidence to the contrary and the proof by books is allowed not only in an action between traders, but also when one of the parties to a suit is a non-trader. When trade books have not been kept according to law, they may not serve as evidence in favour of the trader who keeps them, but rather they shall constitute evidence against the trader (article 631 of the COCP).

If a trader is not in a position to produce the accounts because he destroyed them or it is not in his interest to show them, automatically he is considered to be a fraudulent bankrupt. However, according to article 540, if he has not kept books or if the books do not show the true state of his assets and liabilities he may be adjudged a fraudulent bankrupt unless he proves that he had no intention to defraud.