Meaning: A statement showing the estimated balances of various assets and liabilities of a business on a particular date is called ‘Statement of Affairs.’
Explanation : Under this system capital of the proprietor is ascertained by preparing statement of affairs. This statement is like a Balance sheet, on left side liabilities are shown and assets and receivables are shown on the right side.
The difference between total of assets side and the total of liabilities side is known as capital.
In other words, capital is calculated by using the following accounting equation :
Capital = Total amount of Assets – Total amount of Liabilities.
Objective : Under this system profit earned or loss sustained in the business in any accounting year can be ascertained by comparing capital at the end of the accounting year with the capital at the beginning of the same accounting year. In single entry system capital account is not maintained. Hence, to find out opening and closing capital of the business on a particular date, statement of affairs is prepared.
Specimen: The specimen of statement of affairs is as under :
Forming : Statement of Affairs is like a Balance sheet, on left side liabilities other than capital are shown and Assets and Receivables are shown on the right side. After having deduction of all liabilities (excluding capital) from the total of assets side, the arised difference is known as capital.
By showing opening balances of assets, receivables and liabilities in opening statement of affairs, the arised difference is known as opening capital. Similarly by showing closing balances of assets, receivables and liabilities in closing statement of affairs, the arised difference is known as closing capital.
Here amount of assets, receivables and liabilities can be ascertained from accounts maintained and if the accounts are not maintained, then their valuation can be considered.
Summary: Statement of affairs is prepared by balances and estimated values from incomplete records. From this statement, true and fair view of economical condition of a business cannot be found.
