(Money Matters) How do I track personal expenses? - Kasfia Rashid

Kasfia Rashid - “Money Matters with Kash the Bookkeeper”

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Introduction: 
Hello! Welcome to Money Matters- Ask the bookkeeper series, the accounting show answering burning accounting questions! You know, the ones you would only ask your best bookkeeping buddy! 

Each show will have one main question from the audience with supporting questions from my various travels. Have a question to ask? Don’t be shy, step right on up! You can submit your questions directly to Hello@kashthebookkeeper.com! You may hear your question aired live across the globe! 

We have discussed Assets and Liabilities questions and today we move forward with Owner’s Equity! Owners’ equity rounds out one of the basic equations of accounting:
Assets = Liabilities + Owners Equity. 
We can rearrange this equation to say: 
Assets- Liabilities = Owners Equity. 

Catch up on the concept from last season’s podcast here: https://pod.co/money-matters-with-kash-the-bookkeeper/1-money-matters-owners-equity-you-are-worth-it-kasfia-rashid

Today’s question is a continuation of our conversation    from last week: “How do I track personal expenses along with my business expenses?” One of the buckets of expenses we covered last week was personal expenses that the business was responsible for paying on behalf of the owner to determine a sufficient salary, so let’s add to that  data by creating personal financial statements that we can use in conjunction with business ones! 

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Show Objectives - The Why

Financial statements can be prepared for either companies or individuals. An individual’s financial statement is referred to as a personal financial statement and is a simpler version of corporate statements. Both are tools that can show the financial health of the subject.

Keeping an updated personal financial statement allows an individual to track how their financial health improves or deteriorates over time. These can be invaluable tools when consumers want to change their financial situation or apply for credit such as a loan or a mortgage. Knowing where they stand financially allows consumers to avoid unnecessary inquiries on their credit reports and the hassles of declined credit applications.

When you are a business owner and your business is responsible for your lifestyle, having a personal income statement has some serious long term benefits. 

1. It solves the question of “where did all the money go?” by breaking down the personal expenses that the business’s income (via distribution or wage) pays for. 
2. Makes tax time easier by having information relating to home offices, personal investments, personal loans and other key tax information on hand at all times. 
3. Allows the business owner to control expenses that may otherwise affect the business’s health. 

What You Need to Know - The What
The term personal financial statement refers to a document or spreadsheet that outlines an individual's financial position at a given point in time. The statement typically includes general information about the individual, such as name and address, along with a breakdown of total assets and liabilities.


Assets include the value of securities and funds held in checking or savings accounts, retirement account balances, trading accounts, and real estate. Liabilities include any debts the individual may have including personal loans, credit cards, student loans, unpaid taxes, and mortgages. Debts that are jointly owned are also included. Married couples may create joint personal financial statements by combining their assets and liabilities.
Income and expenses are also included if the statement is used to attain credit or to show someone's overall financial position. This can be tracked on a separate sheet. This includes all forms of income and expenses—typically expressed in the form of monthly or yearly amounts.
The following items are not included in a personal financial statement:

• Business-related assets and liabilities: These are excluded unless the individual is directly and personally responsible. So if someone personally guarantees a loan for their business—similar to cosigning—the loan is included in their personal financial statement.
• Rented items: Anything rented is not included in personal financial statements because the assets aren't owned. This changes if you own the property and rent it out to someone else. In this case, the value of the property is included in your asset list.
• Personal property: Items such as furniture and household goods are typically not included as assets on a personal balance sheet because these items can’t easily be sold to pay off a loan. Personal property with significant value, such as jewelry and antiques, may be included if their value can be verified with an appraisal.

What You Need to Do​​ - The How

The simplest thing to do is to keep your personal and business records separate. However, if you follow these simple steps you should be able to create a combined financial statement that reflects both your personal and business records on one sheet of paper! 
*NOTE* I am not a CPA and these records should be for internal purposes only. 
Ok, now thats out of the way…. 

1. Keep all business and personal transactions separate by bank or credit card account. I have said this before and I will say it again. If you are commingling your funds, the next few steps will be MUCH harder to complete. 
2. Label every personal account as a “Personal” account. Make this ABUNDANTLY clear to anyone who is reading the financial statements. 
3. Keep all personal transactions on the BALANCE SHEET only! Do not, I repeat in bold Do not, put any personal income or expenses on the business income statement. Instead, create sub-categories under the “Owner’s equity” section of the balance sheet. 
4. Label all sub-categories using “Personal” at the beginning ( see #2) 
5. Use tax schedules and forms to choose sub-categories 
6. Keep all transfers to and from business accounts from personal accounts in one category (be careful not to double count these!) 
7. Remember to “zero” out these accounts at the end of the year and before handing them over to any one outside of the owners. 

When it is complete, it should look like this:

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Articles :

1. https://www.investopedia.com/terms/p/personal-financial-statement.asp#:~:text=Understanding%20the%20Personal%20Financial%20Statement&text=Both%20are%20tools%20that%20can,pay%20off%20all%20their%20debts. 
2. https://www.invest-safely.com/personal-financial-statements.html

Additional Resources 

1. Check out Kash’s Youtube Playlist: Bookkeeping basics for small business owners. 
2. Want to learn how to use QuickBooks? Click here for three free videos! 
3. Want more KASH? Sign up for the free newsletter! 

Shows: 
Previous: How do I pay myself? 
Next:  How do I turn my service based company into a product?

​Written by Kash the bookkeeper  
Check out the last QuickBooks Online Tutorial you will never need here! 

You can connect with Kash on any of her seriously social platforms under the handle @Kashthebookkeeper
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