Statement of Affairs (Cambridge (CIE) O Level Accounting)

Revision Note

Donna Simpson

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 capital figure at the start or the end of the financial year

  • It is prepared from the assets and liabilities of the business

  • The capital can be found using a rearrangement of the accounting equation

    • Capital = Assets - Liabilities

How do I prepare a statement of affairs?

  • STEP 1
    List all the assets and calculate the total assets

    • Non-current assets

    • Current assets

  • STEP 2
    Write down the value for the total capital and liabilities

    • It is the same as the total assets

    • Leave the capital value blank for now

  • STEP 3
    List all the liabilities

    • Non-current liabilities

    • Current liabilities

  • STEP 4
    Find the missing capital value

    • Subtract the total liabilities from the total assets

Layout of a statement of affairs
Layout of a statement of affairs

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 capital at 1 January 2023.

Answer

  • Expenses owing is a liability

  • Complete the assets section

    • The total below is $69 800

  • The total for the capital 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 capital 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

Capital and liabilities

Capital

48 700

Current liabilities

Trade payables

20  800 

300 

21 100

Total capital 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 capital value

  • This can then be used to calculate the profit or loss for the year

  • Closing capital is calculated using:

    • Closing capital = Opening capital + Capital introduced - Drawings + Profit (or - Loss)

  • You can rearrange this to find the profit or loss:

    • Profit or loss = Closing capital - Opening capital + Drawings - Capital introduced

    • A positive value indicates a profit, a negative value indicates a loss

  • Alternatively, you can draw up the capital 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

The layout of the capital account when finding the profit or loss
The layout of the capital account when finding the profit or loss

Worked Example

On 1 January 2023, Murray's capital balance was $48 700. During the year, Murray introduced $10 000 capital to the business and took out $5 000 drawings. The capital 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 capital

80 500

Less: Opening capital

48 700

31 800

Drawings

5 000

36 800

Less: Capital introduced

10 000

Profit for the year

26 800

Alternatively, draw up the capital 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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Donna Simpson

Author: Donna Simpson

Expertise: Accounting Content Creator

Donna is a classroom practitioner with over 25 years experience in teaching accounting and business studies at GCSE A-Levels and undergraduate levels, both in the UK and abroad. She currently works for a Multi-Academy Trust (MAT) as a teacher, instructional coach and mentor to other teachers. Donna is also an AQA A Level Accounting examiner as well as the content creator of resources used by all accounting teachers across the Trust. She enjoys designing and creating resources that provides students with deeper understanding of the subject content. Donna has a Bachelor of Science Degree in Business Administration with major in Accounting and Finance (BSc Hons) and ACCA certified to Level 2.

Dan Finlay

Author: Dan Finlay

Expertise: Maths Lead

Dan graduated from the University of Oxford with a First class degree in mathematics. As well as teaching maths for over 8 years, Dan has marked a range of exams for Edexcel, tutored students and taught A Level Accounting. Dan has a keen interest in statistics and probability and their real-life applications.