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

Answer : The statement of affairs is a Statement of Assets and Liabilities. A Statement of Affairs almost includes all the items related to the balance sheet, but still is not a balance sheet. 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 Preforma of the statement of affairs is presented below.
Statement of Affairs
as on...

Liabilities	Amt. (Rs)	Assets	Amt. (Rs)
Bills Payable	---	Land and Building	---
Creditors	---	Plant and Machinery	---
Outstanding Expenses		Furniture
Capital (Balancing Figure)		Stock	----
		Debtors	----
		Cash and Bank	----
		Prepaid Expenses	----
		Capital - Deficiency
		(Balancing Figure, if any)
	=		=

For ascertaining profit or loss, opening and closing capital balances are always required. Some times it is not given in the question in that case if opening balance of capital is not given, opening statement of affairs is prepared and when closing balance of capital is not given, closing statement is calculated, a Statement of Profit or Loss is being prepared to determine the amount of profit earned or loss incurred during the accounting period. The Proforma of the statement of Profit and Loss is presented below.
Statement of Profit or Loss
for the year ended....

Particulars	Amt. (Rs)
Closing Capital at the end of the year	----
(+) Drawings made during the year	----
(-) Additional capital introduced during the year	----
Adjusted Capital at the end of the year	----
(-) Capital in the beginning of the year	----
Profit (Loss) for the year (Balancing figure)	----