Statement of affairs definition

What is a Statement of Affairs?

A statement of affairs lists the assets and liabilities of an entity at their liquidation values. This report represents the worst possible net book value of an entity, since the liquidation value of assets may be substantially less than their value when they can be sold at a more leisurely pace. However, the statement does not include the projected cost of administering the sale of an entity’s assets, so the actual amount realized will likely be even lower than what is presented on the statement. A sample presentation appears in the following exhibit.

The statement of affairs is usually prepared for a business that is either approaching or already in bankruptcy. It is most useful for developing an understanding of the amounts that may be available to creditors in the event of a liquidation.

Statement of Affairs FAQs

How does a statement of affairs differ from a balance sheet?

A statement of affairs estimates assets and liabilities, often during insolvency or liquidation, using expected realizable and settlement values. A balance sheet presents assets, liabilities, and equity under applicable accounting standards at a reporting date. The statement of affairs emphasizes creditor recovery, while the balance sheet emphasizes financial position.

How are jointly owned assets treated when preparing a statement of affairs?

Jointly owned assets are generally included only to the extent of the debtor’s ownership interest. The estimated realizable value should reflect applicable ownership percentages, liens, restrictions, and rights of other owners. If ownership or recoverability is uncertain, the statement of affairs should clearly disclose the assumptions used.