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I've never understood accounting really, apart from the basic concepts. Supposing I want to keep a better track of my money, I'm using Excel at this moment. I guess I need to move to some double entry balanced accounting system.

The question is, how do you declare your income? Is there a table for that?

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    Theoretically, you might record it as an investment return from your stock of human capital? :) – user296 Oct 21 '10 at 16:02
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    Double entry accounting seems a bit excessive for personal finances unless you are running some kind of business. But to answer your question it would depend on the source of the income. – JohnFx Oct 21 '10 at 16:14
  • I'm sure it's excessive, it's just that I never know how I spend the money and I have a feeling there is a finite amount of it. – GUI Junkie Oct 21 '10 at 23:23
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Create an account called, say, "Paycheck". When you get paid, create an entry with your gross income as a deposit. For each deduction in your paycheck, create a minus (or expense) entry. After doing that, what will be left in the Paycheck account will be your net income. Simply transfer this amount to the real account your paycheck goes into (your checking account, probably).

Almost all the time, the value of your Paycheck account will be 0. It will be nonzero only for a moment every two weeks (or however often you get paid).

I don't know if this is the standard way of doing it (in the professional accounting world). It's a way I developed on my own and it works well, I think. I think it's better than just adding a deposit entry in your checking account for your net income as it lets you keep track of all your deductions.

(I use Quicken for the Mac. Before they added a Paycheck feature, I used this method. Then they removed the Paycheck feature from the latest version of Quicken for the Mac and I now use this method again.)

  • Good enough for me. I'll give it a try. – GUI Junkie Oct 21 '10 at 23:23
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I don't think you need double-entry bookkeeping.

To quote Robert Kiyosaki (roughly): Income is when money enters you pocket, and expenses are when money leaves your pocket. Income is an addition; expenses are subtractions.

But if you want double-entry accounting, I'm not qualified to answer that. :)

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Congratulations on keeping better track of your finances!

Typically there will be a class of accounts labelled "Income", under which you will have a separate account for each type of income (stock dividends, paychecks, home appreciation, etc).

In that case, showing your income would be a transfer from the Paycheck account to your Checking account. Note that, as there are no offsetting transactions, this means your income account will steadily accrue a balance over time - just ignore this number, it's only the sum of all your paychecks. There are methods of dealing with that number (and making the income account have a zero balance), but you don't need to worry about it at this stage. Just learning to properly track expenses is the major accomplishment.

  • That was a little bit what was puzzling me, the sum of the paychecks. – GUI Junkie Oct 22 '10 at 8:33
  • The thing about double entry accounting is that to get rid of that balance, you have to transfer it to another account. Typically an Equity account is used for this, and the transfer (usually done either monthly or annually) is known as "closing the books", since the balance in all your income and expense accounts afterward will be $0. However, the Equity account used will also accumulate a balance; if you like, you may use two separate accounts, and call them "Lifetime Earnings" and "Lifetime Expenses". I just use a single account called "Monthly Closing". – Benjamin Chambers Oct 22 '10 at 14:17
  • I forgot to mention, at the same time you close your income accounts, you should close all your expense accounts as well. – Benjamin Chambers Oct 22 '10 at 14:18

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