Statement of Affairs and Ascertainment of Profit or Loss
Statement of affairs is like a balance sheet. Under single entry system, statement of affairs is the list of assets and liabilities of a business organization in a given period. Capital is the difference between assets and liabilities.
Summary
Statement of affairs is like a balance sheet. Under single entry system, statement of affairs is the list of assets and liabilities of a business organization in a given period. Capital is the difference between assets and liabilities.
Things to Remember
- Statement of affairs is the statement showing assets liabilities and capital of the entity prepared on the basis of a single entry system of bookkeeping.
- It is the part of financial statement.
- It is prepared to find out the amount of capital at a certain point of time.
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Statement of Affairs and Ascertainment of Profit or Loss
INTRODUCTION TO STATEMENT OF AFFAIRS
Statement of affairs is like a balance sheet. Under single entry book keeping system, statement of affairs is the list of assets and liabilities of a business organization in a given period. Capital is the difference between assets and liabilities. Opening capital is obtained from statement of affairs prepared at the beginning of the year and closing capital is obtained from statement of affairs prepared at the end of the year.
Preparation of Statement of Affairs and Ascertainment of Profit or Loss
Step 1: Preparation of statement of affairs
Statement of affairs
As on…………………
| Liabilities | Amount | Assets | Amount |
| Creditor | XXX XXX XXX XXX XXX | Cash in hand Debtor Account receivable Closing stock Furniture Land & building Other assets | XXX XXX XXX XXX XXX XXX XXX XXX XXX |
| XXX | XXX |
Step 2: Ascertainment of profit or loss
Statement of profit or loss
As on year ended…………….
| Particulars | Amount |
| Capital at the end (closing capital) | XXX |
| Total | XXX |
| Adjusted capital | XXX |
| Profit/Loss for the year | XXX |
Alternatively,
Statement of profit or loss
As on year ended…………….
| Particulars | Amount |
| Capital at the end (closing capital) | XXX |
| Total | XXX |
| Adjusted capital | XXX |
| Profit/Loss for the year before adjustment | XXX |
| Less: Depreciation on fixed assets | XXX |
| Net profit/loss after adjustment | XXX |
Note: Adjustment given in the question can be adjusted in closing statement of affairs or on the statement of profit and loss.
Difference between statement of affairs and balance sheet
| Basis | Balance sheet | Statement of affairs |
| System of recording | It is prepared through books maintained under double entry. | It is prepared through both the books maintained under single entry system. |
| Preparation of trial balance | Under this system, trial balance can be prepared to check the arithmetical accuracy. | Under this system, trial balance cannot be prepared so arithmetical accuracy cannot be checked. |
| Purpose | Its purpose is to disclose financial position. | Its purposed is to find out capital as well as profit. |
| Financial position | It can show the true financial position. | It can’t show the true financial position. |
| Scale of organization | It is suitable for all organization. | It is suitable for small organization. |
ILLUSTRATION 1:
The position of Mr. HariShrestha as on 1st January 2006 and 31st Dec 2007
| Particulars | 1st January 2006 | 31st Dec 2007 |
| Cash in hand Cash at bank Furniture Stock Debtor Creditor | 4000 20000 10000 15000 50000 40000 | 5000 25000 15000 20000 80000 50000 |
Requirement:
- Opening statement of affairs
- Closing statement of affairs
- Statement of profit and loss
Additional information:
- Drawing during the year Rs.5000
- New capital introduced Rs. 20000
Solution:
Opening statement of affairs
As on 1st January 2006
| Liabilities | Amount | Assets | Amount |
| Creditor | 40000 | Cash in hand Furniture Stock Debtor | 4000 20000 10000 15000 50000 |
| 99000 | 99000 |
Closing statement of affairs
As on 31st Dec 2007
| Liabilities | Amount | Assets | Amount |
| Creditor | 50000 | Cash in hand Furniture Stock Debtor | 5000 25000 15000 20000 80000 |
| 145000 | 145000 |
Statement of profit and loss
As on 31st Dec 2007
| Particulars | Amount |
| Capital at the end (closing capital) | 95000 |
| Total | 100000 |
| Adjusted capital | 120000 |
| Profit for the year | 61000 |
References:
Sharma, Narendra et.al., Principles of Accounting-XI, Bundipuran Prakashan, Kathmandu
Koirala, Yadav Raj et.al., Principles of Accounting-XI, Asmita Books Publication, Kathmandu
Shrestha, Dasharaha et.al., Accountancy-XI, M.K. Prakashan, Kathmandu
Lesson
Accounting for Incomplete Records
Subject
Principles of Accounting
Grade
Grade 11
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