Small traders and partnership firms, do not maintain their books of accounts as per double entry system. They used to keep a track of cash and credit transactions only. However, at the end of the financial year, these firms also want to know the position of business. For this purpose, statement of affairs is prepared at the beginning and at the ends of the period, so as to determine the overall change in the capital, during the financial year.
Statement of affairs is often confused with Balance Sheet, as it also lists out assets and liabilities of the company. Balance Sheet exhibits the position of business, at a given date.
There are some noteworthy differences between statement of affairs and balance sheet, in the sense that the former is prepared from incomplete records whereas the latter is prepared from proper records maintained on the basis of double entry system. Some more differences between these two statements are shown here in tabular form.
Content: Statement of Affairs Vs Balance Sheet
|Basis for Comparison||Statement of Affairs||Balance Sheet|
|Meaning||Statement of Affairs is a statement showing assets, liabilities and capital of the entity prepared on the basis of a single entry system of bookkeeping.||A Balance Sheet is a statement showing assets, liabilities and equity of the company prepared on the basis of the double entry system of bookkeeping.|
|Capital||Nothing more than a balancing figure.||Derived from ledger accounts and so total assets are equal to total liabilities.|
|Part of Financial Statement||No||Yes|
|Objective||To find out the opening or closing capital.||To show the company's financial position.|
|Estimation of Values||Yes||No|
|Compulsion of Preparation||Yes||No|
Definition of Statement of Affairs
Statement of Affairs is a statement in which there are two sections left and right. The left section represents liabilities, whereas the right one is for assets. It is prepared on the basis of a single entry system of bookkeeping. As incomplete records are maintained, many times assumed figures are taken into consideration to find out the opening or closing capital (as the case may be). This opening or closing capital is also spelled as net assets because it is the result of assets over liabilities.
Statement of Affairs is prepared on the opening date if the purpose is to trace out opening capital. Likewise, it is made on the closing date if the purpose is to trace out the closing capital.
Nowadays it is mandatory for every company to maintain their books of accounts as per double entry system, but there are still some small businessman and traders who keep their books as per single entry system. In this way, proper and systematic records are not maintained by them.
Definition of Balance Sheet
A Balance Sheet is a statement which highlights the financial status of the company at a particular date. It has two sections, assets, and equity & liabilities. As equity is considered as a part of liabilities, it is included in the liabilities section. The assets represent the amount which the company owns. On the contrary, liabilities represents the amount which the company owes.
The preparation of Balance Sheet is obligatory for every company. It is prepared on the basis of the double entry system of bookkeeping. In a double entry system of bookkeeping, complete recording of every transaction is done along with various stages. The final stage is the preparation of Balance Sheet. If it is not prepared correctly or if some asset or liability is omitted, then the amount of sides will not be identical. It is a mark of its exactitude.
Key Differences Between Statement of Affairs and Balance Sheet
- The basis of preparation of the Statement of Affairs is a partly single entry and partly double entry system, whereas the basis of preparation of Balance Sheet is a double entry system.
- In the balance sheet, capital is derived from the ledger accounts. On the contrary, in the case of the statement of affairs, capital in merely a balancing figure.
- A Balance Sheet is a very important part of the financial statements, but the Statement of Affairs is not a part of the financial statement.
- The Balance Sheet is accurate as it is prepared after a complete procedure is followed, but the accuracy of the Statement of Affairs is very less, as it is ready from incomplete records.
- In the Balance sheet, there are no estimated figures, however, due to insufficient records, hypothetical figures are taken.
- Statement of Affairs is prepared on either opening or closing date, whereas Balance Sheet is prepared for a specific date.
- There is no specific format for the Statement of Affairs, whereas Balance Sheet has a particular format (Revised Schedule VI), on the basis of which it is prepared.
- Summary of Assets and Liabilities.
- Helpful in knowing company’s liquidity and stability.
The concept of both the statements are almost same, but experts consider Balance Sheet as more accurate, reliable and versatile as it follows a complete procedure. Statement of Affairs lacks such attributes. When the double entry system was not present people used to keep the records of their transaction as per single entry system, and that is why it is the oldest one.