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The challenge of maintaining personal accounts
Life and Leisure by
Posted on Tue, Apr 12, 2011 at 11:17 IST (last updated: Sun, Jul 29, 2012 @ 21:11 IST)
In this day and age when you are used to swiping your credit card mindlessly at shops and stores, I think it's an important discipline to keep a book of personal accounts. I have been maintaining my accounts for the past few months and I think it gives one a good perspective of monetary inflow and outflow. To this end, I use GnuCash, a free, cross-platform open source accounts software and I find it a very versatile and useful software, particularly as it's not "dumbed down" and forces you to think about what you're doing (it uses the double-entry book keeping method).
The big challenge in maintaining personal accounts is to determine the proper accounting principles and apply them consistently. How do you deal with income? Under what heads of accounts do you manage your regular transactions? What do you treat as an asset and what do you treat as a liability? How do you manage petty cash or cash in hand? How do you update your bank records (automatically or manually)? How do you account for a temporary or short-term loan? How do you write off certain kinds of losses? How do you deal with depreciation of fixed assets? How do you deal with assets like stocks, securities, bonds and mutual funds? All these are big challenges for people who have no background in financial accounting principles.
I'm lucky that my parents are chartered accounts and I am in a position to clarify my doubts whenever they arise. Of course, I can hardly claim to be a financial expert myself, but I do understand it far more than I used to in the past. For professionals who work on their own and don't get a regular salary from a company, managing accounts is a very important part of their profession. Taxes like income tax and professional tax are levied on certain professions and it is the duty of such professionals to account for all their assets, liabilities, income and expenditure. Managing accounts properly will also allow them to benefit from certain statutory tax exemptions and reliefs. Of course, it is always recommended that a qualified auditor verifies such business accounts. Right now, I'm learning step by step, but I don't claim to know the proper accounting practices in the legal profession. However, as I go along, I plan to expand my knowledge and manage my professional finances in a similar manner so that I can avail of tax benefits and exemptions to their limit.