Note on Statement of Affairs and Ascertainment of Profit or Loss

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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.

Source: slideplayer.com
Source: slideplayer.com

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
Bills payable
Bank overdraft
Account payable
Other liability
Capital (balancing figure)

XXX
XXX

XXX

XXX

XXX

XXX

Cash in hand
Cash at bank

Debtor
Bills receivable

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)
Add: drawing during the year

XXX
XXX

Total
Less: New Additional Capital

XXX
(XXX)

Adjusted capital
Less: Capital in beginning (opening capital)

XXX
(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)
Add: drawing during the year

XXX
XXX

Total
Less: New Additional Capital

XXX
(XXX)

Adjusted capital
Less: Capital in beginning (opening capital)

XXX
(XXX)

Profit/Loss for the year before adjustment

XXX

Less: Depreciation on fixed assets
Less: Bad debt or provision for bad debt for the year

XXX
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:

  1. Opening statement of affairs
  2. Closing statement of affairs
  3. Statement of profit and loss

Additional information:

  1. Drawing during the year Rs.5000
  2. New capital introduced Rs. 20000

Solution:

Opening statement of affairs
As on 1st January 2006

Liabilities

Amount

Assets

Amount

Creditor
Capital (balancing figure)

40000
59000

Cash in hand
Cash at bank

Furniture

Stock

Debtor

4000

20000

10000

15000

50000

99000

99000

Closing statement of affairs
As on 31st Dec 2007

Liabilities

Amount

Assets

Amount

Creditor
Capital (balancing figure)

50000
95000

Cash in hand
Cash at bank

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)
Add: drawing during the year

95000
5000

Total
Less: New Additional Capital

100000
20000

Adjusted capital
Less: Capital in beginning (opening capital)

120000
(59000)

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

  1. 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.
  2. It is the part of financial statement.
  3. It is prepared to find out the amount of capital at a certain point of time.
.

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