Personal Financial Accounting

Financial accounting refers to a system of recording business transactions, in a summarized form, so that different stake holders can use the information to make decisions. Financial accounting is important through recording business transactions in the books of accounts or source books. Accounting is important to personal finance because it allows one to assess the current situation without guessing or having second thoughts because it provides facts. By keeping records one will get to know their financial position, to measure progress and to have effective future plans (Siegel and Yatch, 2009). Recording financial transactions allow individuals to keep track of their spending and money uses and to keep track of the money they receive at a

An income statement is a summary statement that shows the difference between income and expenses or the net profit for a given period of time (Siegel and Yatch, 2009). In personal finance, income refers to the money earned and expenses refer to the cost of the things used for everyday living for example clothes, electricity and food. The difference between the two is one's personal profit. It is favorable to have more income than expenses because then one has a surplus. But it is a bad thing to have more expenses than the income, the result is a deficit and a deficit often leads to debt. The income statement also give insight on which expenses take most of the income or how much income will be needed to cover everything needed.

A cash flow statement is a statement that gives clear account of the movement of cash; it gives the source of the income, the amount, how the income was used and the amount used and where it was used for a period of time. Cash flow statement includes all the cash flow and not just income and expenses. Cash flows from financing are from paying back what was borrowed. Cash flows from investing are from buying or selling assets and free cash flow is cash flow from operations less debt repayment. Operating cash flows are recurring while cash flows from financing and cash flows from investing are