UNIT-II CAPITAL COMPARISON METHOD

1. Capital Comparison Method Also Known as Net Worth Method or Statement of Affairs Method.

Main Difference between Balance Sheet and Statement of Affairs:

Balance Sheet	Statement of Affairs
Balance sheet is prepared on the basis of double entry system of book keeping	Statement of affairs is prepared on the basis of incomplete records.
Balance sheet is prepared to present financial position of the business	Statement of affairs is prepared to find out either the amount of opening capital or closing capital.
Balance sheet shows the true financial position of the business.	Statement of affairs does not show the true financial position of the business.
Balance sheet is prepared at the  final stage of accounting procedure.	Statement of affairs is not prepared at the final    stage of the accounting procedure.It is prepared before the preparation of statement of profit or loss

2. Steps Under Capital Comparison Method:

1. Calculate Opening capital: 
Calculate by preparing an opening statement of affairs.Difference between total assets and outside liabilities is the capital on that date.

2. Calculate Capital at the end:
Calculate by preparing an closing statement of affairs.

3.Prepare the Statement of Profit and Loss:
Adjust the capital at close by adding drawings and subtracting additions to capital, Subtract capital at the beginning to arrive at profit for the year, and make other adjustments to arrive net profit.

4.Prepare a Fresh / revised Statement of Affairs at the end:
 By incorporating all adjustments such as depreciation, provisions, interest on drawings & Capital, etc.