Personal Financial Accounting

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Recommended: Basics of Accounting Theory

a. What is accounting and how does it help you manage your personal finances?
Accounting is defined as set of concepts and techniques that are used to measure and report financial information about economic units. (Walther L.M, 2012).
Accounting has two distinct methods that can be used for financial reporting, which are accrual and cash accounting methods.
Accrual accounting according to Siegel, (2009) is a method of accounting that measures the performance and position of a company by recognizing economic events regardless of when cash transactions occur.
Cash accounting method on the other hand is a method of accounting in which cash flow is the base of account. With this method receipts are recorded during the period they are received …show more content…

Describe the three products of accounting and bookkeeping procedures that are most useful in personal financial planning.
The three products of bookkeeping and accounting procedures that are useful for personal financial planning include income statement, balance sheet and cash flow.
Income statement gives us a summary of incomes and expenses for a given accounting period. It gives the financial performance on how the business incur it revenues and how it spent it through operating and non-operating cost activities. With income statement one can see expenses of income and adjust accordingly.
When it happens that income is greater than expenses we have surplus and when it is less than expenses we have a deficit. Having a surplus means that we can either save, invest or increase our expenditure. If there is a deficit then the income statement can enable us know where we need to adjust our debts and expenditure.
Cash flow statement is a financial statement that enables us know how changes in balance sheet accounts and income affect cash and the equivalent of cash.
It shows how well one is creating liquidity as well as net income. It is useful in determining the short run viability of a company. Examples may include the payment of loan or payment of

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