Page 7 - Chapter-11.pmd

Accounts from Incomplete Records 443

Statement of Profit or Loss for the year ended on March 31, 2014

Particulars Amount
Rs.
Capital as on March 31,2014 7,87,250
Add Drawings during the year 96,000
8,83,250
Less Additional capital introduced during the year (15,000)
Adjusted capital at the end of the year (31.3.2014) 8,68,250
Less Capital as on April 01, 2013 (7,63,590)
Profit made during the year 1,04,660

11.3.2 Difference between Statement of Affairs and Balance Sheet
Both statement of affairs and balance sheet show the assets and liabilities of a
business entity on a particular date. However, there are some fundamental
differences between the two. A statement of affairs is prepared from incomplete
records where most of the assets are recorded on the basis of estimates as
compared to a balance sheet which is prepared from records maintained on the
basis of double entry book-keeping and all assets and liabilities can be verified
from the ledger accounts. Hence, a balance sheet is more reliable than a statement
of affairs. The objective of preparing a statement of affairs is to ascertain the
amount of capital account as on that date whereas a balance sheet is prepared
to know the financial position of the business at a particular date. In statement
of affairs, an item of assets or liabilities may get omitted and this omission may
remain unknown because the effect of this omission gets adjusted in the capital
account balance and the total of both sides of statement match. However, in case
of a balance sheet the possibility of omission of any item is remote because in
case of an omission, the balance sheet will not agree and the accountant will
trace the missing item from accounting records. These differences have been
shown in a tabular form as under :
Basis of difference Statement of affairs Balance sheet
Reliability It is less reliable as it is prepared It is more reliable as it is prepared
from incomplete records. from double entry records.
Objective The objective of preparing state- The objective of preparing balance
ment of affairs is to estimate the sheet is to show the true financial
balance in capital account on a position of an entity on a
particular date. particular date.
Omission Omission of assets or liabilities Omissions of assets or liabilities
cannot be discovered easily. can be discovered easily and can
be traced from accounting records.

Fig. 11.3 : Showing comparison between statement of affairs and balance sheet

2015-16