Question
What is a Statement of Affairs? How does it differ from the Balance Sheet?
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Answer
A Statement of Affairs is a statement of assets and liabilities. Difference between the amounts of the two sides is taken as capital.
Under the Single Entry System, it is necessary to prepare Statement of Affairs at the end of the year and also in the beginning of the year, if not already prepared to determine profit. Statement of Affairs like Balance Sheet, has two sides-right-hand side for Assets and left-hand side for Liabilities. The difference between the total of assets and liabilities is capital.
Capital = Total Assets - Liabilities
Difference between Balance Sheet and Statement of Affairs:
Under the Single Entry System, it is necessary to prepare Statement of Affairs at the end of the year and also in the beginning of the year, if not already prepared to determine profit. Statement of Affairs like Balance Sheet, has two sides-right-hand side for Assets and left-hand side for Liabilities. The difference between the total of assets and liabilities is capital.
Capital = Total Assets - Liabilities
Difference between Balance Sheet and Statement of Affairs:
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Basis
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Balance Sheet
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Statement of Affairs
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Objective
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The main objective of preparing Balance Sheet is to know about the financial position of the business.
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The main objective of preparing Statement of Affairs is to know about capital at a point of time.
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2
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Accounting System
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Balance Sheet is prepared when accounts are maintained under Double Entry System.
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Statement of Affairs is prepared when accounts are maintained under Single Entry System.
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3
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Accounts and Information
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This is prepared exclusively on the basis of ledger accounts.
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In view of incomplete accounts, its preparation is based on limited accounts, calculations, estimates and other information.
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