Distinguish between balance sheet and a Statement of Affairs ?
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Answer:
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.