donfinance

[donfinance]

Bah bah bah bah!!!!

Por moderna, eso en coche no te pasa.

[donfinance]

To Recap my most current post

Positive balances for Accounts

Assets - Debit   (e.g. Cash and receivables)

Liabilities - Cedit (e.g. Payables)

Equity - Credit (e.g. Retained Earnings)

Expense Debit (e.g. Gas Expense)

Revenue - Credit e.g. Work Revenue)

Net Income - Credit

How to Recognise Revenue

                                                                                   Debit          Credit

Cash On Hand                                                             100

                       Work Revenue                                                            100

Lets say your a waiter and you take home cash every night. Your asset (cash) increases when you come home, because you now have more cash than you did. Increase cash with a debit. You also need to show you made revenue. You do this with a credit to increase.

How to recognise Expense

                                                                               Debit          Credit

Food and Drink Expense                                           8

                       Cash On Account                                                     8

Lets say you buy a sandwich at a deli with your debit card. You decreasing the amount of you asset (cash) in your bank account. Credit your asset to decrease it. You also have to recognise that you have an expense to attribute. Debit your expense to increase it.

These are basically the two biggest kinds of entries you will be posting. The trick is knowing with expense or revenue to attribute it to. Nearly everything you will be doing will affect your cash.

More to Come!

[donfinance]

Debits and Credits

Alright guys, here we go, I'm going to try and explain the most difficult part of this concept. It is the idea of debits and credits.

Until now, I have been explaining everything in terms of increasing or decreasing your accounts. For instance, I would say if you get cash, you would increase your asset. However, in order to maintain balance in your books, you would have to have certain things that offset other things.

For example. someone lends you money. There are two things you need to recognise. The first, and better one, is that you now have more money! Second, you need to show that you now have a debt, or you owe somebody something! These two items offset eachother, meaning as one goes up, the other will go up.

First I'll explain the debits and credits for each category and then I will explain how it pertains to my aforementioned example.

Assets - The normal balance for an asset is a debit... This means if you get cash, then you would debit that asset account. If you lose cash, then you credit your asset. 

Liability - In this case, it would be your payable accounts. To increase your liability it would be a credit. This means as you increase your debt, you increase you liability with a credit.

Equity - To increase your equity, you would credit it as well.

Those are you balance sheet items. Now your income statement items.

Expense - To increase your expense, it would be a debit.

Revenue - To increase your revenue would be a debit

Net Income - To increase your net income it would be a credit.

Im going to look for something to post that will explain this a little better. But not only what you will need for this project, and its the basis of accounting and buisiness in its entirety. Learn this, and you can read financial statements before investing, and better understand the basis for contracts. Learn this not just for this purpose but for your life, its big.

Going back to what I mentioned before, You borrow $20 cash from someone. You have more cash then you started out with. That means your asset of cash went up. To increase your asset, you would have to debit it. BAM... Debit cash. At the same time, you now owe more money that you did before. Because you owe somebody else, this is a liability. To recognise that you owe money, you would have to incease your liability with a credit. BAM... Theres your credit. In a journal it would look like this.

                                                                              Debit             Credit

Cash                                                                        20

             "Friend" Payable                                                                 20

This effectively shows you borrowed 20 bucks from someone. Remember this setup, this is how our journal is going to look when we finally start posting our transactions.

For all of you who have already taken Accounting 101 classes in college or know these things already, bear with me. All I have to show know is the setup that your journal and ledgers are going to have, and then I will post these templates for you all to play with at your leisure.

More to Come!

[donfinance]

Hey guys two more things I'd like to share with you today, and I'm also going to try and put some templates up after I tweak them around a bit for your playing pleasure. First off I'm going to introduce you guys to two more accounts that we'll need. Prepaid Expense and Unearned Revenue.

Both of these accounts are based off of something called the matching principle. Basically that means we don't recognize revenue until we earn it. We also dont recognize expenses until they're incurred.

Prepaid Expense - Has the word expense so it has to be an expense right? Noooo my feeble minded accounting trainee. Prepaid expense is an asset. This applies to what were doing here, and this is going to be an asset account we're going to throw into the mix. For example, I was getting really high bills from my gas company every month for 5 months. I called them to figure out why it was so high, and they had been miscalculating my gas bill for those months. This resulted in a $300 credit and I didn't have to pay for gas for the next 4 months or so. This is a prepaid expense. I put that into this account, so when I had a $40 gas bill, I pulled 40 bucks out of my prepaid expense account, and I put it into my expense account. (See the difference?)

I know it sounds confusing, but we need this account. When the gas company gave me this credit, they didnt give me any physical cash, they gave me a credit. One of the important things about this project is you can see how much cash you have at any point and time. If you just toss that $300 into your cash account, then your going to overstating how much cash you, and it will never add up to whats in your pocket.

Unearned Revenue - This is the opposite of of the prepaid expense. This account represents a liability, or something you owe to someone else. Really, its work that you owe to someone. If someone pays you to do a job that you havent done yet sure you have the money, But you cant really record that as revenue yet. To be honest, We wont really use this account very often, since our set of books isn't going to be terribly strict. I just wanted to share this with you in case you find the opportunity to use it!

Wll thats it for now. I'm going to post shortly about debits and credits, and how we post to journals. This is super super important and I'm going to try and explain it as clearly as I can. This is going to be how we post our transactions into our journals.

See you then!

[donfinance]

A bit of proof

So Ive relaized I have been doing a lot of explaining without showing you guys any results. Let me show you a few pictures of a past month I put together.

This is my Expense analysis for the month of... July I believe. Here you can see a lot of information to analyze. You can look at the graphs to see a general overview, the total amount expensed for every cash account through the month, the total amount expensed dailyt the average expense on a daily basis, etc.

This guy right here is my revenue analysis. I set this one up the same way as the expense one, but I can also see how my girlfriend and I compare throughout the month.

This guys a biggie. Remember that net income I was telling you about? thats the green number all the way on the right. At any given time I can see how much money in total for the month I have made or how much I have lost. This sheet basically pits revenue against expenses to show how much I have gained or lost on the days shown, or in total.

Finally, this guys shows me on a daily basis if I had a net income or loss for each day of the month. This helps me see trends for when I'm losing the most money. That red line is my average income. That tells me how much my income is on average for all of the days in the month.

There are two seperate documents which I didnt show here. This ones the pretty one where you see all your info. The other ones are the ones you work on to put info onto here. The beautiful thing about it is I dont enter a single number into this document. The formulas automatically pull into this and update. So as long as I record the info in my 'journal document' for 5 minutes a night, This automatically updates and I can see how I'm doing for the month.

Well thats it for now guys, 

More to come!

[donfinance]

The Income Statement Items

Next up guys, Income statement. This is most important for us. Truth be told, the way were working things, the balance sheet looks nice, and tell us how much cash we have, but this is where the action is. The Income statement has three items two. Revenue, Expenses, and Net Income.

Please dont make me get into it, you know what Revenue and Expenses are. Revenue is money you make, and Expenses is money you lose, right?

Almost! Revenue is money you earn. This is why we need the balance sheet. Say you lend money to Matt. You will increase your Receivable on the balance sheet and decrease your cash on the balance sheet. When he pays you back, that's not revenue. Your really just increasing your cash again and taking back an asset that you gave away a little while ago!

That goes the same way with expenses. If you owe your buddy cash, that means he gave you cash (your asset) beforehand. You increase your cash and also increased your payable (because you owe him) So thats not really and expense when you pay him back, your expense is what you bought with the original cash he gave you!

Finally, we have Net Income. This will be your big number at the end of the month. We take this number, and put it into your retained earnings on the balance sheet at the end of the month. The Net Income uses a formula which is as follows:

Revenue-Expenses=Net Income

Honestly not too important till we get to it. For now its all about revenue and expenses.

Well I'm wiped.

More to come!

[donfinance]

Ok guys so I'm going to start with a few basic accounting principles to get people started. If you already have those principles down pat then be patient. Everyone else, don't worry. I'm only teaching you what you need to know and we'll move on from there.

Every buisiness in the world has a few things in common. Two of those things are known as a balance sheet and an income statement.

Balance Sheet - These guys show at one specific point in time what one owns, what one owes, and what one has invested into his or herself. This is shown through three distinct categories. assets, liabilities, and equity.

     Assets - What one owns. Theoretically, this is anything in a company that can be converted into cash. Truth is it gets complicated. Lucky for us, all we really need to start with are two assets. Cash and Account's Receivable.

          Cash - This ones easy enough. For our purposes, were going to create two cash accounts Cash On Hand and Cash On Account. Cash on Hand represents any cash thats not in the bank. Lying around the house, hiding in your wallet, what you left in your car. Cash On Account is all the Cash you have in the bank. 

          Accounts Receivable - This guy is what everyone else owes you. I tend to write the name of the person who owes me as well as the Recveivable at the end (e.g. - 'Omar Receivable' or 'Samantha Receivable').

     Liabilities - Let's admit it, many of us hear this word thrown around, but most of us really dont know how to define it. In an accounting sense it is what you owe to everyone else. Really, all we have to worry about is the accounts payable.

          Accounts Payable - This is the account were going to use to clarify that it is you who owes others. For these accounts, do the same thing you do for accounts receivable, but put payable at the end.

     Equity - Equity accounts are your vested interest in your buisiness. Being that in this case, were talking about your life, I hope this is so. All I worry about here is retained earnings.

         Retained Earnings - This guy is pretty much your earnings in holdings, or what you have saved. When you finish the month, you can close everything out to this account, and then start over again next month.

Well there you have the balance sheet items, its important to get these guys down for now. My next post will be income statement items. Conquer those two, and your already halfway there.

More to come!

[donfinance]

Your life is your buisiness? Then invest in it and treat the people you meet like your customers

donfinance

[donfinance]

Hi everyone,

This is my first post, so I wanted to take a moment to introduce myself.

I am not a CPA and I am an not a cheapskate. I am a 25 year old student from New York who is currently in school, and was lucky enough to get a job as a professional accountant. Hell, I didn't even graduate college yet! But I came up with a way using Microsoft Excel to take what I leanred in school, what I learned in my place of work, and use it to control my money.  I am one of the few people in my circle of friends who when talking about how broke they are, I nerdily mention how 31% of my revenue can be attributed to Food and Drink Expense for the month. They just say they lost a lot of money and theyre not sure how.

This is not a get rich quick blog. This is a take control of your life blog. Accounting is the language of buisiness. I believe that if we harness this in our day to day life we control our bills, remember who owes us what, as well as grow some balls when were negotiating a lower cost with customer service! There are three assumptions I will give you if you want this to succeed.

1) Have a halfway decent understanding of accounting. If you dont have this, I will give it to you. The basics are going to help you use the templates I set up in Excel, which leads me to number two...

2) Have a decent understanding of Excel. This is important, because like anything else with technology, things can go wrong. Formulas can get messed up. We will have to repair them. Worst comes to worst, I will be putting up posts to help you through this.

3) You have to care for your financial books. This will be your journal, and you will need to record all transactions throughout your day. If you cannot care for it on a day to day basis, it would be wise to bring a small book and pen without you through the day to record your transactions manually. Those pennies and dimes are easy to forget!

So thats the basics. New to any of it? Don't be scared, its not as bad as you think, I'll be here to help you. Too much trouble for you? Then those get rich quick sites won't help you either.

More to follow!