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

products of accounting and bookkeeping procedures that are most useful in personal financial planning?
Three products of bookkeeping and accounting procedures that are most useful in personal financial planning are: Income statement, cash flow and balance sheet.
Income statement: It summarizes the incomes and expenses for a period of time.

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

equity.
How could personal financial software assist you in your personal financial decisions?
Personal finance software is designed to make the record-keeping aspect of personal finance easy as much as possible. It makes collection, classification, and sorting of financial data easier. They are also designed to produce summary reports (income statement, cash flow statements and balance sheets). Personal finance software are designed such that once data is entered the software does the bookkeeping. Also data can be inputted by simply importing from another source. The summary reports produced – income statement, cash flow statement, and balance sheet shows the financial activity for the period. This will help you decide to make adjustments. Most personal finance software has the “what if” feature that helps to make financial decisions. You can also use the budgeting feature to project possible scenarios.
References
Walther L.M (2012), Principles of Accounting. Logan, UT: Utah State University. Available at http://www.principlesofaccounting.com

Siegel R. & Yacht C (2009), Personal Finance, Flat World Knowledge