Statement of Affairs

Statements of affairs

Statements of affairs

What is a statement of affairs?

• A statement of affairs is similar to a statement of financial position

  • The difference is that the business has not used a full set of accounting records

  • Therefore the business cannot complete an income statement to find the profit or loss

• It is prepared to find the missing capital figure at the start or the end of the financial year

• It is prepared from the assets and liabilities of the business

• The capital can be found using a rearrangement of the accounting equation

  • Capital = Assets - Liabilities

How do I prepare a statement of affairs?

• STEP 1
  List all the assets and calculate the total assets

  • Non-current assets

  • Current assets

• STEP 2
  Write down the value for the total capital and liabilities

  • It is the same as the total assets

  • Leave the capital value blank for now

• STEP 3
  List all the liabilities

  • Non-current liabilities

  • Current liabilities

• STEP 4
  Find the missing capital value

  • Subtract the total liabilities from the total assets

How can I use a statement of affairs to calculate the profit or loss for the year?

• You can use a statement of affairs to calculate the opening or closing capital value

• This can then be used to calculate the profit or loss for the year

• Closing capital is calculated using:

  • Closing capital = Opening capital + Capital introduced - Drawings + Profit (or - Loss)

• You can rearrange this to find the profit or loss:

  • Profit or loss = Closing capital - Opening capital + Drawings - Capital introduced

  • A positive value indicates a profit, a negative value indicates a loss

• Alternatively, you can draw up the capital ledger account and find the value that balances the account

  • If the balancing value is on the debit side then it represents a loss

  • If the balancing value is on the credit side then it represents a profit