Statement of Affairs (Cambridge International IGCSE Accounting)

Statements 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

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

Final answer: Murray Final answer: Statement of Affairs at 1 January 2023
	Final answer: $**	Final answer: $
Final answer: Non-current assets
Final answer: Shop fittings at book value		Final answer: 9 000
Final answer: Current assets
Final answer: Inventory	Final answer: 35 600
Final answer: Trade receivables	Final answer: 19 200
Final answer: Bank	Final answer: 6 000	Final answer: 60 800
Final answer: Total assets		Final answer: 69 800
Final answer: Capital and liabilities
Final answer: Capital		Final answer: 48 700
Final answer: Current liabilities
Final answer: Trade payables	Final answer:** 20 800 **
	Final answer:** 300	Final answer: 21 100
Final answer: Total capital and liabilities		Final answer: 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

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

Final answer: The profit for the year was $26 800