Accountancy · Ch 5 — Accounts from Incomplete Records
Preparing Statement of Affairs
Preparing Statement of Affairs
Under this method, a statement of assets and liabilities at the beginning and at the end of the
accounting period is prepared to find the change in capital during the period. Such a statement is
called a statement of affairs. Like a balance sheet, it shows assets on one side and
liabilities on the other; the difference between the two totals (the balancing figure) is the capital. Although it resembles a balance sheet, it is not called one, because the figures are not
wholly based on ledger balances — items such as fixed assets, outstanding expenses and bank
balances are ascertained from documents and physical counts.
Format of statement of affairs
| Liabilities | Amount (₹) | Assets | Amount (₹) |
|---|---|---|---|
| Bills payable | ×××× | Land and Building | ×××× |
| Creditors | ×××× | Machinery | ×××× |
| Outstanding expenses | ×××× | Furniture | ×××× |
| Capital (balancing figure)* | ×××× | Stock | ×××× |
| Debtors | ×××× | ||
| Cash and Bank | ×××× | ||
| Prepaid expenses | ×××× | ||
| ×××× | ×××× |
*Where the total of the liabilities side is more than the total of the assets side, the capital is shown on the assets side and it represents a debit balance of capital.
Once the capital at the beginning and at the end has been computed from the statement of affairs, a
statement of profit or loss is prepared. The difference between the opening and closing capital
represents the increase or decrease in capital, which is then adjusted for any drawings made by
the owner (added back) and any fresh capital introduced during the year (deducted), to arrive
at the profit or loss for the period.
Format of statement of profit or loss
| Particulars | Amount (₹) |
|---|---|
| Capital as at the end of the year (from closing statement of affairs) | ..... |
| Add: Drawings during the year | ..... |
| Less: Additional capital introduced during the year | (.....) |
| Adjusted capital at the end of the year | ..... |
| Less: Capital as at the beginning of the year (from opening statement of affairs) | (.....) |
| Profit or Loss made during the year | ..... |
If the net result is positive it is the profit earned; if negative, it is the loss sustained
during the year. The same computation can be written as an equation:
Profit or Loss = Capital at end − Capital at beginning + Drawings during the year − Capital introduced during the year.
For example, take the following figures from the records of Ms. Sheetu: capital at the
beginning of the year (April 01, 2016) ₹1,20,000; capital at the end (March 31, 2017) ₹2,00,000; …