Basic Accountng Will Help You Manage Your Money Better

It Helps to Know Some Basic Accounting

Accountant? You don’t have to be an accountant to understand some of the basics of accounting when it comes to managing your finances at home or if you run a small business. The key to accounting is that for every financial transaction, something gets "added to" an account and something gets "taken away" from an account. Also, at any given time, your assets or worth is defined in terms of what is left after subtracting out your liabilities and expenses. In non-accounting terms, this means that the money you have is defined in terms of what is left over after you pay your expenses. And if you have any upcoming expenses, they need to be reserved out of the money you currently have.

You first start by listing all of your sources of income and your assets. Your assets could include money in your checking and savings accounts. Assets can also include money that others owe you or have promised to pay. If you run a small business then this could be items you have sold but have not received payment for. These are assets. Assets will also include those that are "liquid" and those not very "liquid." By "liquid" we mean that an asset can be turned into cash somewhat easily. Money in your checking account can be very quickly turned into cash by just going to the ATM machine and making a withdrawal. However, your car is not very liquid because you would have to sell it and this usually is not a real quick process.  

So if you know what your "liquid" assets are and what your current expenses are then you have most of the information you need to run a balanced budget. Make sure if you write checks to pay expenses that you record the amount of the check and subtract it from the balance in your check register right away. That’s all there is to it. Pay your expenses but don’t let them exceed your liquid assets.

Disclaimer: The information in this article does not constitute professional advice. This article is for informational purposes only .

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