Difference Between Statement of Affairs and Balance Sheet

Statement of Affairs vs Balance Sheet
 

The key difference between Balance Sheet and Statement of Affairs is that the balance sheet is one among the financial statements, which presents the financial position of a particular business to a given date while, in contrast, statement of affairs summarizes the assets and liabilities of a particular business entity. Particularly, the financial position is measured considering the three main components: assets, liabilities and equity, in the balance sheet. The figures incorporated in the balance sheet help decision makers to identify the level of risk that the entity faces with. On the other hand, the results of the statement of affairs carry the level of insolvency, i.e. the amount of capital that will remain after settling down all the liabilities to a given date. Despite presenting book values of the assets and liabilities, this statement presents the recoverability of the investment done after settling all the obligations by selling off its assets.

What is a Balance Sheet?

Balance sheet, also known as the statement of financial position (for not for profit organizations), is an indicator of the financial position of a given entity to a specific date. It reports aggregate balances of assets, liabilities and equity accounts as the end of a certain period, usually a year. Balance sheet measures financial health of a business entity. Therefore, by analyzing balance sheet figures, the stakeholders can arrive at various decisions particularly for planning volatility of future earnings.

What is a Statement of Affairs?

Statement of affairs (SOA) is also identified as a record of financial position of a particular business entity at a given time. The key purpose of SOA is to afford relevant information for the interested parties such as shareholders, customers, employees, competitor, etc. Rather than exhibiting book values of the assets and liabilities, SOA considers the amount at which the organization can recover after selling off their assets and settling their outside obligations.

When looking at the similarities between Balance Sheet and Statement of Affairs one can say that both statements talk about financial position of a particular business entity in terms of liquidity.

What is the difference between Balance Sheet and Statement of Affairs?

• Balance sheet is prepared based on double entry system. Statement of affairs is a single and incomplete entry.

• Balance sheet is prepared to present financial position of a business entity at a given date. Statement of affairs is prepared to find out the amount of capital either opening or closing.

• Balance sheet shows assets at book value. Statement of affairs shows assets at both book value and market value.

• Balance sheet is usually prepared at the end of the financial year. Statement of affairs is prepared for the date when the order is given against the debtor.

• A balance sheet has to obey accounting practices, standards, concepts and policies. A statement of affairs has to be prepared according to the insolvency act.

• Balance sheet adheres to going concern concept believing that these assets and liabilities will remain with the organization for a period. Statement of affairs considers realizable and payable values of the assets and liabilities to the present date, which is against to the going concern concept.

• Balance sheet is prepared as the final financial statement of the general manual accounting procedure. Statement of affairs is prepared before the preparation of profit and loss statement.

Statement of Affairs vs Balance Sheet Summary

Balance sheet and statement of affairs are two statements prepared to assess the financial position of a particular business entity. Balance sheet is a mandatory requirement under accounting procedures, which is prepared by aggregating balances of all the ledger accounts. In contrast, statement of affairs presents the insolvency level of a business entity, emphasizing the net realizable and payable values of assets and liabilities. Both of these statements help decision makers to make financial and investment decisions in a substantial manner.