Analyze Your Personal Finance Paper

What is accounting and how does it help you manage your personal finances?

Accounting is a set of concepts and techniques that are used to measure and report financial information about an economic unit (Walther L.M (2012).

The decisions you make whether to save money, buy an asset etc leads to transactions. Accounting is the process that records these transactions and reports about these transactions. In order to make better decisions, you need to know how these transactions affect your income, and your expenses. With this knowledge you can make necessary adjustments. Keeping records of transactions and knowing the effect of a transaction on the income as well as the expense section is crucial in managing of personal finance.

Describe the three

It clearly shows the difference between the income and expenses or the net profit (net loss) for the period in question. With the income statement, you can see which of your expenses consumes the greatest portion of your income. If income is greater than expenses, there is a surplus. If income is less than expenses, then there is a deficit. With a surplus, you can decide to save more or invest while if there is a deficit, you should be able to know where to address this.

Cash flow: The cash flow statement shows in details the sources and uses of cash and classifying them from operating, investing or financing activities. It is useful as it shows how well one is creating liquidity as well as net income. Examples of cash flows may include receiving repayment of money loaned out, repaying money borrowed or using money to buy or sell an asset.

Balance sheet: It is often referred to as the statement of financial condition. It is a snapshot of what you have and what you owe at a given point in time. It lists all assets, liabilities and equity or net worth, with their values. The value of the assets must equal the value of the debt and the