Statement of Affairs (Edexcel IGCSE Accounting)
Revision Note
Written by: Donna Simpson
Reviewed by: Dan Finlay
Statement of Affairs
What is a statement of affairs?
A statement of affairs is similar to a statement of financial position
The difference is that the business has not used a full set of accounting records
Therefore the business cannot complete an income statement to find the profit or loss
It is prepared to find the missing equity figure at the start or the end of the financial year
It is prepared from the assets and liabilities of the business
The equity can be found using a rearrangement of the accounting equation
Equity = Assets - Liabilities
How do I prepare a statement of affairs?
STEP 1
List all the assets and calculate the total assetsNon-current assets
Current assets
STEP 2
Write down the value for the total equity and liabilitiesIt is the same as the total assets
Leave the equity value blank for now
STEP 3
List all the liabilitiesNon-current liabilities
Current liabilities
STEP 4
Find the missing equity valueSubtract the total liabilities from the total assets
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
Expenses owing is a liability
Complete the assets section
The total below is $69 800
The total for the equity and liabilities section will be the same
Complete the liabilities section
Expenses owing is an accrued expense which is a liability
The total below is $21 100
Subtract the liabilities from the assets to find the missing equity value
$69 800 - $21 100 = $48 700
Murray Statement of Affairs at 1 January 2023 | ||
$ | $ | |
Non-current assets | ||
Shop fittings at book value | 9 000 | |
Current assets | ||
Inventory | 35 600 | |
Trade receivables | 19 200 | |
Bank | 6 000 | |
60 800 | ||
Total assets | 69 800 | |
Equity and liabilities | ||
Equity | 48 700 | |
Current liabilities | ||
Trade payables | 20 800 | |
300 | ||
21 100 | ||
Total equity and liabilities | 69 800 | |
How can I use a statement of affairs to calculate the profit or loss for the year?
You can use a statement of affairs to calculate the opening or closing equity value
This can then be used to calculate the profit or loss for the year
Closing equity is calculated using:
Closing equity = Opening equity + Capital introduced - Drawings + Profit (or - Loss)
You can rearrange this to find the profit or loss:
Profit or loss = Closing equity - Opening equity + Drawings - Capital introduced
A positive value indicates a profit, a negative value indicates a loss
Alternatively, you can draw up the equity ledger account and find the value that balances the account
If the balancing value is on the debit side then it represents a loss
If the balancing value is on the credit side then it represents a profit
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.
$ | |
Closing equity | 80 500 |
Less: Opening equity | (48 700) |
Add: Drawings | 5 000 |
Less: Capital introduced | (10 000) |
Profit for the year | 26 800 |
Alternatively, draw up the equity account. It can be a rough sketch.
Details | $ | Details | $ |
Drawings | 5 000 | Balance b/d | 48 700 |
Balance c/d | 80 500 | Capital introduced | 10 000 |
| Income statement (profit) | 26 800 | |
85 500 | 85 500 | ||
Balance b/d | 80 500 |
The profit for the year was $26 800.
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