Thursday, March 15, 2012

Managing Your Joint Finances

People are getting married later in life now. More and more couples are waiting until after certain milestones are achieved, such as graduating from school or attaining job security. This means that more and more people are independently financially stable before merging their lives - and money - with someone else. That can spell trouble for a new couple; when two people who are used to spending freely without consulting someone else are all of a sudden asked to share financial responsibilities. As a newly married woman, I have first hand experience with how difficult it can be to merge finances with the love of your life. We were both employed long before we met, and financially stable as independent people. Rationally, one might think that would mean we would be financially stable as a couple, but creating one budget from two independent ones is sometimes more difficult than it looks. No one can say what will definitely work for you, but here are a few tips to keep your heads above water.

Where Did the Money Go?

Even if you and your partner keep your finances mostly separate, you are still jointly responsible for rent or mortgage payments, food, and other shared expenses. When each of you are spending money from your joint accounts outside those shared responsibilities, you might find that your money is disappearing faster than anticipated. A good way to keep track of joint cash flow is to keep a budget somewhere you both can see and update it every time one of you spends any money. We keep a dry-erase board on our refrigerator with categories like Food, Entertainment, Gifts, etc. and monthly denominations written under them. For example, we like to spend under $500 per month on food, so the Food category has $500 written under it. Every time one of us spends shared money on food, we subtract that amount from the monthly total. Needless to say, when it gets to the end of each month, we end up eating a lot of inexpensive foods such as pasta and Ramen noodles, but at least we're within our budget!

Tuesday, March 13, 2012

Basic Accounting Concepts and Principles

The main purpose of financial accounting is to provide necessary economic information required for decision-making in a business. Financial accounting follows certain rules and guidelines to prepare reports on the financial standing of an entity. These rules and guidelines are usually referred to as Generally Accepted Accounting Principles (GAAP). GAAP sets its accounting standards and guidelines for preparing financial reports for public, private, non-profitable organizations, and government-owned companies.

Readers of a financial report should be intimated if the information provided in the financial statements follow the GAAP guidelines. The accountant or auditor is responsible for ensuring this procedure.

Fundamental Concepts of Accounting

Basic Accounting Principle     Description
Business Entity     This principle treats the company as a separate entity from its owners. Personal accounts of owners/partners should be kept separate from profits and expenses of the company. So, the accounting reports are prepared from the viewpoint of business purposes and not from the owner's outlook.
Cost     This principle states that the company has to consider the original cost of fixed assets like building and machinery, rather than market value. But today, most of the companies report only the market value.
Sincerity     According to this principle, the auditors should prepare the financial reports in order to project the real financial position of the company rather than fabricating facts.

Monetary Unit     This principle assumes that transactions should be recorded in a single currency and exchange rate. This will help the company compare its accounts to the previous years, in spite of a change in the rate of inflation. This principle actually supports the preparation of business reports in a uniform manner.
Consistency     According to this principle, the accountants should use the same methods and functions for different periods of time. For example, the same rate of percentage should be applied for all depreciation. This principle is also known as the principle of regularity.