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(b)  Difference between Balance Sheet and Statement of affairs


Balance Sheet

Statement of affairs


It is a Statement of assets, Liabilities and Capital extracted from ledgers balances maintained under the double entry system.

It is a Statement of assets, Liabilities and Capital extracted from incomplete records.


In this system, Personal, Capital account is taken from the ledger.

In this system, Capital is the excess of assets over liabilities.


The basic purpose of Balance sheet is to show the financial position of the business on the last day of accounting period.

A statement of affairs is prepared to show the financial position as well as it helps in ascertaining trading profit or loss.


The financial position disclosed by a Balance Sheet is reliable.

The financial position as disclosed by a Statement of affairs is not as reliable as that disclosed by a Balance sheet.



Q.N.4. What is Statement of affairs? How is it prepared? What are its objectives?

Ans:    In case of Single entry System, it not possible to prepare the Balance sheet of the business because real and nominal accounts are not maintained. Therefore, to judge the financial position of the business a statement showing various assets and liabilities on a particular date is prepared from such information as may be available. Such statement is known as Statement of affairs.

             A statement of affairs is prepared by estimating the values of assets and liabilities (except cash and personal accounts) in the absence of real and nominal accounts in the single entry system.

The following points should be considered while preparing Statement of Affairs:

1.                   The cash book should be balanced and cash in hand should be verified with the balance.

2.                   Bank reconciliation statement should be prepared to reconcile cash book and pass book balance.

3.                   The list of debtors and creditors should be prepared from personal accounts maintained in the ledger.

4.                   Stock-in-trade should be taken and valued at cost or market price, whichever is lower.

5.                   The value of fixed assets should be ascertained from vouchers or other available sources after providing depreciation.                                                                              

6.                   All outstanding expenses and incomes should be considered and shown in the Statement of affairs.

7.                   Similarly, all expenses paid in advance and incomes received in advance should be considered and shown in the Statement of affairs.

8.                   Other specific assets and liabilities, such bills receivable, bills payable, loan from bank or other sources etc. should also be taken into consideration.

9.                   The excess of assets over liabilities should be taken as capital of the proprietor on the date when the statement of affairs is prepared.

 Objectives of Statement of affairs:

1.                   To depict the financial position of the business on a particular date showing various assets

2.                   and liabilities.

3.                   To assist in ascertainment of trading profit or loss for a particular period.


Q.N.5. Mention the various sources of information from which a statement of affairs is prepared.

 Ans:                   Same as above (preparation of statement of affairs)


Q.N.6. A statement of affairs appears like a Balance Sheet. Then why it is called a Statement of Affairs?

Ans: Pending

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