Explanation

Net profit is not required in preparing a statement of affairs. A statement of affairs shows the financial position of a business (assets and liabilities) at a specific date, similar to a balance sheet.

A statement of affairs is typically prepared when complete accounting records are not available, such as for businesses using single-entry bookkeeping or incomplete records. It lists assets and liabilities to determine the capital position.

Accruals are included as they represent liabilities for expenses incurred but not yet paid. Cash in hand is an asset that must be shown. Fixed assets like equipment and buildings are also included as they represent resources owned by the business.

Net profit is derived from the income statement (profit and loss account), not the statement of affairs. However, by comparing capital at two dates (from statements of affairs), we can calculate profit or loss for the period.