Exam code:4AC1
Statement of affairs
What is a statement of affairs?
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A statement of affairs is similar to a statement of financial position
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The difference is that the business has not used a full set of accounting records
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Therefore the business cannot complete an income statement to find the profit or loss
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It is prepared to find the missing equity figure at the start or the end of the financial year
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It is prepared from the assets and liabilities of the business
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The equity can be found using a rearrangement of the accounting equation
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Equity = Assets – Liabilities
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How do I prepare a statement of affairs?
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STEP 1
List all the assets and calculate the total assets-
Non-current assets
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Current assets
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STEP 2
Write down the value for the total equity and liabilities-
It is the same as the total assets
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Leave the equity value blank for now
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STEP 3
List all the liabilities-
Non-current liabilities
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Current liabilities
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STEP 4
Find the missing equity value-
Subtract the total liabilities from the total assets
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Worked Example
Murray operates a local retail store. Murray does not keep full accounting records. Murrary provided the following information about his assets and liabilities at 1 January 2023:
|
|
$ |
|
Shop fittings (net book value) |
9 000 |
|
Inventory |
35 600 |
|
Trade receivables |
19 200 |
|
Bank |
6 000 |
|
Trade payables |
20 800 |
|
Expenses owing |
300 |
Prepare a statement of affairs to calculate Murray’s equity at 1 January 2023.
Answer
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Expenses owing is a liability
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Complete the assets section
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The total below is $69 800
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The total for the equity and liabilities section will be the same
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Complete the liabilities section
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Expenses owing is an accrued expense which is a liability
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The total below is $21 100
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Subtract the liabilities from the assets to find the missing equity value
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$69 800 – $21 100 = $48 700
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Murray Statement of Affairs at 1 January 2023 |
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$ |
$ |
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Non-current assets |
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Shop fittings at book value |
9 000 |
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Current assets |
||
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Inventory |
35 600 |
|
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Trade receivables |
19 200 |
|
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Bank |
6 000 |
|
|
60 800 |
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Total assets |
69 800 |
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Equity and liabilities |
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Equity |
48 700 |
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Current liabilities |
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Trade payables |
20 800 |
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|
300 |
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21 100 |
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Total equity and liabilities |
69 800 |
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How can I use a statement of affairs to calculate the profit or loss for the year?
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You can use a statement of affairs to calculate the opening or closing equity value
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This can then be used to calculate the profit or loss for the year
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Closing equity is calculated using:
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Closing equity = Opening equity + Capital introduced – Drawings + Profit (or – Loss)
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You can rearrange this to find the profit or loss:
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Profit or loss = Closing equity – Opening equity + Drawings – Capital introduced
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A positive value indicates a profit, a negative value indicates a loss
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Alternatively, you can draw up the equity ledger account and find the value that balances the account
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If the balancing value is on the debit side then it represents a loss
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If the balancing value is on the credit side then it represents a profit
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Worked Example
On 1 January 2023, Murray’s equity balance was $48 700. During the year, Murray introduced $10 000 capital to the business and took out $5 000 drawings. The equity account had a balance of $80 500 at 31 December 2023.
Calculate the profit or loss for the year ended 31 December 2023.
Answer
Use the formula.
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$ |
|
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Closing equity |
80 500 |
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Less: Opening equity |
(48 700) |
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Add: Drawings |
5 000 |
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Less: Capital introduced |
(10 000) |
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Profit for the year |
26 800 |
Alternatively, draw up the equity account. It can be a rough sketch.
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Details |
$ |
Details |
$ |
|
Drawings |
5 000 |
Balance b/d |
48 700 |
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Balance c/d |
80 500 |
Capital introduced |
10 000 |
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