What is Statement Affairs? – Definition
However, while calculating profit or loss under this method, the following things may also be kept under consideration:
Fresh Capital or Additional Capital
If fresh or Additional Capital is being introduced during the period it will make the closing capital incorrect. To calculate the true amount of profit or loss, the fresh capital should be deducted from the closing capital.
If some goods or amount is withdrawn for personal use by owner during the period, then these drawings reduce the amount of closing capital. So it is necessary that the amount of drawings should be added to closing capital to give the true profit.
We can explain this with the help of the following formula:
Net profit = Closing Capital + Drawings – Opening Capital – Fresh Capital
Difference between the Statement of Affairs and Balance Sheet
|Statement of Affairs||Balance Sheet|
|(i). Its is prepared under single entry system.||It is prepared under the double-entry system.|
|(ii). It is prepared from a variety of source like information from other sources, money, etc.||It is prepared only form books of accounts.|
|(iii). Its accuracy is not reliable as it is prepared from incomplete records.||Its accuracy is reliable and can be verified as it is prepared from a set of books maintained under the double-entry system.|
John & Co. keeps their books by the single entry system. The position of the firm on 1st January 2019 was as follow:
Stock in Trade: $18,000, Debtors: $15,000, Furniture and Fixtures: $17,500, Cash at Bank: $12,500, Sundry Creditors: $13,500, Outstanding Salaries: $2,200.
The position of the firm on 31st December 2019 was as follows:
Stock in Trade: $24,000; Debtors: $19,500, Furniture and Fixtures: $15,000, Plant: $10,000, Sundry Creditors: $12,000, Bank Overdraft: $8,000.
During the year, John withdrew $3,500 for his personal expenses. Charge interest on capital @ 5% p.a.
Required: Prepare Statement showing profit or loss made by the firm for the year ended December 31, 2019.