Small companies do not keep their account books according to the double-entry system. They only record cash and credit transactions. Nevertheless, these companies wish to know their business position at the end of the financial year. Hence, the statement of affairs is prepared at the start and at the end of the duration, to figure out the overall modification in the capital, throughout the fiscal year (Also see How Can Good Accountants Help in Growing Your Business and Reducing Your Expenses).
Many people, even some accountants (Also see Four Typical Myths About an Accountant), frequently confuse the statement of affairs with the balance sheet, because both documents show liabilities and assets of the company. The balance sheet shows the status of the business at a specified date.
There are some notable differences between the balance sheet and statement of affairs.
- The balance sheet uses a double-entry system basis (Also see The Difference Between Single and Double Entry System) while the statement of affairs uses partly single-entry base and also partly double-entry system.
- The capital on the balance sheet is derived from the ledger accounts. The capital on the statement of affairs is just a balancing figure.
- The balance sheet is prepared for a particular date while the statement of affairs is prepared on the closing or opening date.
- A balance sheet is an important part of the financial statement; however, the statement of affairs does not belong to the financial statement.
- For the balance sheet, there is a specific format, while the statement of affairs has no particular format.
- The balance sheet is very accurate since it is prepared according to the complete procedure. It is less accurate for the statement of affairs because it is prepared from incomplete records.
The similarities between the balance sheet and the statement of affairs are both documents consist of a summary of liabilities and assets, and they are useful to know the stability and liquidity of the company.
The principle of both the declarations are nearly the same, but the professionals assume that the balance sheet is more precise, versatile and dependable compared to the statement of affairs as it is prepared following a complete procedure. If you are still uncertain about the difference between the statement of affairs and the balance sheet, do not hesitate to engage any accounting firm in Johor Bahru for further guidance in accounting (Also see Factors that Encourages You to Outsource Accounting Service).