Distinction between Statement of Affairs and Balance Sheet

Distinction between Statement of Affairs and Balance Sheet

A Balance Sheet is a very important part of the financial statements, but the Statement of Affairs is not a part of the financial statement. A Balance Sheet is a statement showing assets, liabilities, and equity of the company prepared on the source of the double-entry system of bookkeeping. Statement of Affairs is a statement showing assets, liabilities, and capital of the entity prepared on the basis of a single entry system of bookkeeping. Statement of affairs which looks like a balance sheet differs from the balance sheet in the following respects. Therefore, the Balance sheet is prepared as the final financial statement of the general manual accounting procedure. Statement of affairs is prepared before the preparation of profit and loss statement.

The distinction between the Statement of Affairs and Balance Sheet:

Balance Sheet – It is an indicator of the financial position of a given entity to a specific date.

  • Objectives: To Know the financial position of the business. It reports aggregate balances of assets, liabilities and equity accounts as the end of a certain period, usually a year. The main objective of making balance sheet is to show the financial position of any organization.
  • Accounting method: When accounting is maintained under the double-entry system, balance sheet is prepared.
  • Basis of preparation: The basis of preparation of the Balance Sheet is a double-entry system. It is prepared exclusively on the basis of ledger accounts.
  • Reliability: It is regarded as a reliable statement. It is accurate as it is prepared after a complete procedure is followed
  • Missing of Facts: Since both the aspects of all transactions are duly recorded, no chance for missing facts. If we forget to show any asset or liability, our balance sheet will not match. With this, we can find the mistake.
  • Arithmetical Correctness: When the balance sheet’s both sides are matched, it means, it shows also the arithmetical correctness. Because it is prepared from the trial balance and trial balance is prepared from the balance of ledger accounts.

Statement of Affairs – It is identified as a record of the financial position of a particular business entity at a given time.

  • Objectives: To find out the capital of a business. The key purpose of SOA is to afford relevant information for interested parties such as shareholders, customers, employees, competitors, etc. The main objective of making a statement of affairs to find the opening and closing capital in a single entry system and in the liquidation of the company, to find surplus or deficiency on the basis of the estimated value of assets and liabilities of the company.
  • Accounting method: Statement of affairs is prepared when accounts are maintained under a single entry system of accounting.
  • Basis of preparation: It is prepared on the basis of some ledger accounts and estimates. The basis of preparation of the Statement of Affairs is a partly single entry and partly double-entry system,
  • Reliability: It is not regarded as reliable. The accuracy of the Statement of Affairs is very less, as it is ready from incomplete records.
  • Missing of Facts: There remains always a possibility for missing facts because the accounts are incomplete. Because all the assets and liabilities are shown on our past estimation, so, if we forget any asset or liability, we can not find from the statement of affair because due to a wrong estimation, we can show less or more value of asset or liability.
  • Arithmetical Correctness: It does not prove the arithmetical correctness because it is prepared just information of accounting record. It is not prepared on the basis of trial balance.

Statement of Affairs is prepared on either opening or closing date, whereas Balance Sheet is prepared for a specific date. By analyzing balance sheet figures, the stakeholders can arrive at various decisions particularly for planning volatility of future earnings. When looking at the similarities between Balance Sheet and Statement of Affairs one can say that both statements talk about the financial position of a particular business entity in terms of liquidity.

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