Question

What is meant by a ‘statement of affairs’? How can the profit or loss of a trader be ascertained with the help of a statement of affairs?

Answer 1

A Statement of Affairs resembles Balance Sheet; however, it is not called a Balance Sheet. The statement of affairs is a Statement of Assets and Liabilities. The main difference between a Statement of Affairs and a Balance Sheet is that while the former is prepared on the basis of physical counts and improper source documents, the latter is prepared purely on the basis of ledger accounts. Thus, the authentication and relevance of the latter is guaranteed. The excess of assets over liabilities (i.e., balancing figure) is denoted as the capital of the firm. The performa of the statement of affairs is presented below.

Statement of Affairs as on...
Liabilities	Amount Rs	Assets	Amount Rs
Bills Payable	–	Land and Building	–
Creditors	–	Plant and Machinery	–
Outstanding Expense		Furniture
Capital (Balancing Figure)@		Stock	–
		Debtors	–
		Cash and Bank	–
		Prepaid Expenses	–
		Capital-Deficiency (Balancing Figure, if any)*

* When liabilities are more than assets, then the balancing figure is denoted by Capital-Deficiency in the assets side of the statement of affairs.

^@ When the assets’ balance exceeds liabilities’ balance, the balancing figure is denoted by Capital in the liabilities side of the statement of affairs.

For ascertaining profit or loss, if capital in the beginning is not given, then opening statement of affairs is prepared in order to calculate the capital in the beginning. Once the opening capital and closing capital is calculated, a Statement of Profit or Loss is prepared to determine the amount of profit earned or loss incurred during the accounting period.

Statement of Profit or Loss for the year ended.........
Particulars		Amount Rs
Closing capital at the end of the year		–
	Add: Drawings made during the year	–
	Less: Additional capital introduced during the year	–
Adjusted capital at the end of the year		–
	Less: Capital in the beginning of the year	–
	Profit (Loss) for the year	–
	(Balancing figure)