Question
Why is Statement of Affairs not called a Balance Sheet?
✓
Answer
The assets and liabilities are recorded in a statement of affairs just like a Balance Sheet, it should not be described as a Balance Sheet because of the following differences:
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S.No.
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Basis of Difference
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Balance Sheet
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Statement of Affairs
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1.
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Double Entry
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It is prepared with the list of ledger balances drawn from the books of accounts kept on the basis of double entry.
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It is not prepared with the list of ledger balances but with such information as is available from the accounting records kept on the basis of single entry.
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2.
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Arithmetical Accuracy
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The tallying of balance sheet proves arithmetical accuracy of accounting books because it is prepared on the basis of a trial balance.
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A statement of affairs does not prove the arithmetical accuracy of accounting books because it is not prepared on the basis of a trial balance.
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3.
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Value of Assets and Liabilities
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The values of assets and liabilities shown in a Balance Sheet are the actual value based on ledger accounts.
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The values of assets and lliabilities shown in the statement of affairs are merely the estimates based on physical inspection.
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4.
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Object
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It is prepared for ascertaining the financial position of a business.
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It is prepared for ascertaining the capital of a business.
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5.
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Omission of an Assets or a Liability
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If an asset or liability is omitted while preparing a Balance Sheet, it will be easily detected because the Balance Sheet will not tally.
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If an asset or liability is omitted while preparing statement of affairs, it cannot be easily detected.
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6.
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Reliability
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A Balance Sheet is treated as more reliable because it is based on double entry principles.
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It is treated as less reliable because it is based on oncomplete records and estimates.
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