Difference between Statement of Affairs and Balance Sheet

Both a statement of affairs and a balance sheet show the assets and liabilities of a business on a

particular date, but there are important differences between the two. A statement of affairs is

prepared from incomplete records, where most assets are recorded on the basis of estimates,

whereas a balance sheet is prepared from records kept under double entry, so every asset

and liability can be verified from the ledger. A balance sheet is therefore more reliable.

The purpose also differs: a statement of affairs is prepared mainly to ascertain the capital on

a date, while a balance sheet is prepared to show the true financial position of the business.

In a statement of affairs, an item of asset or liability may be omitted without being noticed,

because the effect of the omission is absorbed into the capital (the balancing figure) and both

totals still agree. In a balance sheet such an omission would make the two sides disagree, so the

accountant would trace the missing item. These differences are summarised below: