Personal Financial Accounting

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a. What is accounting and how does it help you manage your personal finances?
Accounting is a method of keeping records or reports such as the income statement, cash flow statement and balance sheet to see your financial situation. Siegel and Yacht (2009) noted that, accounting is the process of seeing what is coming in and what is going out. It helps to show where there is a deficit and where there is a surplus in terms of income and it helps to make valuable financial decisions and other choices. In personal finance, the accounting records are shown through personal check books, statements from the bank and investment accounts whereas, in business finance accounting journals and ledgers are used to record similar transactions.

b. Describe …show more content…

The income statement helps to review the size of the income and expenses per given time period (Siegel & Yacht, 2009). Income is in two different ways. In business it is the value of what is being sold and in personal finance income is in form of salaries and wages.
Income statement gives a brief history and overall viewpoint of whether one is making profits or loses. If there is a profit it will be record as a surplus and if there is a loss it will be recorded as a deficit. Profits will be used as spend money whereas deficits creates debts. Income statements also helps to show disposable income that is; the income left after paying all expenses and taxes.
According to Siegel and Yacht (2009), the cash flow statement helps to show how much cash was gained and how much cash was used. The cash flow statement show how good you are in creating liquidity and net income. It contributes in making sound decisions whether to borrow or buy, or whether to sell or lend insufficient or excess liquidity respectively. Cash flow is not from income and expense.
Cash flows can be in form of operating cash flows; that is from income and expenses, or cash flow from financing assets or investments, or cash flow from investing, or free cash flow; that is the cash flow available for investment (Siegel & Yacht,

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