Statement of Affairs
Under the single entry system of bookkeeping, accounts maintained by the business are incomplete. The businessman maintains the records as per his needs and convenience, generally, cash book and personal accounts of debtors and creditors are maintained. Some of the transactions are recorded fully with both credit and debit sides, some are partially recorded, and some are not recorded at all. Thus, it is not possible to prepare a Trial Balance and Balance Sheet to ascertain the financial position of the firm. So, under such conditions, Statement of Affairs is prepared to know the value of assets and liabilities at the end of an accounting period. Thus, a Statement of Affair is a statement of assets and liabilities at the beginning and at the end of the relevant accounting period prepared to ascertain the value of change in the capital during that period. It is similar to a balance sheet, but the information provided in the statement of affairs is incomplete and derived from physical vouchers and documents rather than from ledger accounts.
Once the statement of Affairs is prepared, the Statement of profit and loss is prepared to calculate the amount of profit or loss made during that accounting period.
Profit or Loss = Capital at the End- Capital at the Beginning+ Drawings during the Year – Capital introduced during the Year.