Three Products Of Accounting And Bookkeeping Procedures That Are More Useful In Personal Finance

A. What is accounting and how does it help you manage your personal finance?
Accounting is defined by Merriam-Webster as the system of recording and summarizing business and financial transactions and analyzing, verifying, and reporting the results. In personal finance, accounting is an extremely important tool to assist in accurately assessing your current situation and understanding the necessary steps that needs to be taken to achieve financial goals. Cash accounting, a method of accounting that records cash flow transactions as they change hands, is the preferred accounting method when accounting is done for personal financial purposes. By practicing accounting in our financial planning we are able to determine if our income is able to meet our financial obligations. From there we are able to figure out what adjustments need to, or are able to be made to meet those obligations and increase our net income.

B. Describe the three products of accounting and bookkeeping procedures that are more useful in personal financial planning.

The income statement summarizes all the income made as well as expenses paid during any given period. By observing the difference between your income and expenditures you are able to determine if a net profit has been made or a net loss has been incurred. The cash flow statement breaks down the incoming and outgoing flow of cash, summarizes its uses, and is categorized as either an operating, investing, or financing activity. These categories differ in the fact that operating activities are recurring, but investing and financing activities are not as frequent. The balance sheet catalogs your assets, liabilities, and equity. It gives an overall outlook of your financial status. These three procedures are useful tools when evaluating our financial