Principles of Accounting: Statement of Affairs

• As already covered in the introduction to single entry and incomplete records
• One of the first required steps in order to prepare financial statements
• Is to prepare a Statement of Affairs
• A Statement of Affairs is a summary of an entity’s asset and liabilities
• The goal is to try and ascertain opening and closing capital balances
• A statement of affairs is based on the Accounting Equation
• Assets = Capital + Liabilities
• You should also understand that Profit increases Capital from period to period while losses do the opposite
• Therefore Capital at the end of the period = Capital at the beginning of the period + Profit for the period-Drawings during the period
• Because of its nature a Statement of Affairs looks a lot like a Statement of Financial Position
• It is important to note however that the format for a Statement of Affairs is  note set
• Please click here to see an example of how a Statement of Affair is prepared
• The above example is used to calculate Profit at the end of the first year but it can also be used to ascertain the Capital Balance at the beginning of the current year

To access more topics go to the Principles of Accounting Notes.