Small traders do not keep their accounts based on the double-entry system (Also see The Difference Between Single and Double Entry System). They only keep track of cash and credit transactions. Then, at the end of the financial year, these companies want to understand the position of their business (Also see Is Opening a Business Bank Account Necessary?). Often, many confuse the statement of affairs with the balance sheet. This is because both documents list out the company’s assets and liabilities.
There are some notable differences between the statement of affairs and balance sheet; the former is prepared using incomplete records while the latter is prepared using proper records according to the double-entry system.
Definition of the Balance Sheet
A balance sheet is a statement that highlights the company’s financial status at a specific date (Also see The Balance Sheet and the Profit & Loss Account). It consists of two sections that are assets and equity & liabilities. Equity is in the liabilities section because it is part of the liabilities. The assets are the amount owned by the business. On the contrary, liabilities indicate the amount owed by the business.
It is compulsory for every business (Also see Characteristics of Successful Business Owners) to prepare the balance sheet. It is prepared using the double-entry system of bookkeeping. A complete recording of each transaction is prepared through numerous stages. Then, the final stage is to prepare the balance sheet. The amount of both sides will not be identical if some liabilities or assets are omitted.
Definition of the Statement of Affairs
There are two sections on the statement of affairs. The right section is for assets, while the left section shows liabilities. This is prepared based on the single-entry system of bookkeeping. Assumed figures are often used to figure out the closing or opening capital because incomplete records are kept. The opening or closing capital is also known as net assets as it is the outcome of assets over liabilities.
The statement of affairs is prepared on the opening date to find the opening capital. Likewise, the statement of affairs is prepared on the closing date to find the closing capital.
The concept of both statements is nearly the same, but the experts think that the balance sheet is more precise because it is based on a complete process, whereas the statement of affairs does not have such qualities. Please reach out to any accounting services in Singapore for more information regarding the statement of affairs and the balance sheet.