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Difference between Statement of Affairs and Balance Sheet

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  • Last Updated : 02 Jun, 2022

Statement of Affairs

Under the single entry system of bookkeeping, accounts maintained by the business are incomplete. The businessman maintains the records as per his needs and convenience, generally, cash book and personal accounts of debtors and creditors are maintained. Some of the transactions are recorded fully with both credit and debit sides, some are partially recorded, and some are not recorded at all. Thus, it is not possible to prepare a Trial Balance and Balance Sheet to ascertain the financial position of the firm. So, under such conditions, Statement of Affairs is prepared to know the value of assets and liabilities at the end of an accounting period. Thus, a Statement of Affair is a statement of assets and liabilities at the beginning and at the end of the relevant accounting period prepared to ascertain the value of change in the capital during that period. It is similar to a balance sheet, but the information provided in the statement of affairs is incomplete and derived from physical vouchers and documents rather than from ledger accounts.

Once the statement of Affairs is prepared, the Statement of profit and loss is prepared to calculate the amount of profit or loss made during that accounting period.

Profit or Loss = Capital at the End- Capital at the Beginning+ Drawings during the Year – Capital introduced during the Year.

Balance Sheet

A statement of position, commonly known as a Balance Sheet is a statement of assets and liabilities prepared at the end of the accounting year to ascertain the financial position of a business unit. The balance sheet helps the stakeholders of the company to judge the liquidity and solvency position of the company. A balance sheet of any company is prepared based on complete records, balances of the ledger and final accounts, hence it is prepared under the double-entry system of bookkeeping. This means that Capital+ Liability is always equal to the Assets of the company. Any omission or wrong recording of assets and liabilities can be easily detected from the accounting records, as accounts are maintained by the rules of the dual bookkeeping system. A statement of position is more reliable in comparison to a statement of affairs, as it is based on complete records. It is generally prepared after the Financial statement and is a summary of all the accounts. The Balance Sheet can be prepared by any type of business unit, whether a Sole Proprietorship, a Partnership firm, a Corporation, or a Non- profit Organization.

Assets = Capital + Liabilities

Difference between the Statement of Affair and the Balance Sheet:

     BASIS              

                  STATEMENT OF AFFAIRS                 

                       BALANCE SHEET                 

Objective The objective of preparing a Statement of Affair is to ascertain the balance of capital on a particular date.  The objective of preparing a Balance sheet is to evaluate the accurate financial position of a business unit on a particular date.
Source of       Information A Statement of Affair is prepared on the basis of estimates and information provided by the owner.  A Balance sheet is prepared on the basis of a Trial Balance, a Ledger and a Financial Statement.
Method of     Bookkeeping    A Statement of Affair is prepared when the accounts are maintained under a single entry system of bookkeeping. A Balance sheet is prepared under a system of double-entry bookkeeping.
Situation A Statement of Affair is prepared under a situation where either the accounts are incomplete or destroyed.  A Balance Sheet is prepared when the accounts are complete and fully maintained as per the Accounting Standards.
Reliability A Statement of Affair is based on incomplete records, hence it is not reliable. A Balance Sheet shows a clear picture of the financial position of any business unit and is more reliable.
Suitability Suitable only for small enterprises. Suitable for all types of business units, whether a sole Proprietorship, a partnership firm, a corporation, or a non- profit organization.  
Omission       Detection  It is not possible to detect the entries that have been missed or not recorded. The omission of transactions can be easily discovered and restored from accounting records. 
Tally   A Statement of Affair does not tally, hence the arithmetic accuracy cannot be judged.  Both sides of a balance sheet are always equal, ensuring an arithmetic accuracy of the financial records. 

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