Separate money with double-entry bookkeping

[mg90]

Hi! In the years I've adopted many techniques to count my money, but since some months I've been in contact with the double-entry bookkeping theory, which I did not hear about until I decided to subscribe to an accounting course in my University (Politecnico di Milano, Italy). I want to use this theory to manage my personal money, but there is a problem.

Given for granted that I grasp the basic concepts, such as the balance equation (assets = liabilities + income - expenses), I'm asking you advice about a situation I can't handle with double entry.

My family gives on an irregular basis some money to spend for books, transportation, school taxes, and I may not use this money to go out with friends or buy anything they think is "unnecessary". In parallel, I have my personal money, which I earn helping people doing homework, on an irregular basis. I have cash, a bank account and a rechargeable debit card.

I want to know how much of the money I can decide on how to use is mine or my family's. This is needed because I want to know when my family's money has been used, so to ask them more money, not wanting to use my hard-earned little money to pay something my parents are expected to pay.

So the technical question: I put in the assets "cash", "bank account" and "card" accounts. I find not very elegant to duplicate these accounts to "my cash", "my family's cash" etc. also because I don't need to know whether those 50 euro note in my wallet is 13 euro mine and 37 euro of my family.

The accounting system I'm using (designed by me) has other drawbacks but handles this situation very well: I want to try to switch to the double-entry book keeping without sacrificing my need of information.

Thank you very much
Mario

 

[hephaestus]

Hi Mario,

I'm by no means a professional accountant -- not even an amateur one, really -- but I may have an idea on how to address your problem.

Rather than keeping track of different kinds of money (yours vs. your family's), perhaps instead you should keep track of different kinds of expenses, i.e., "family-approved" expenses vs. personal expenses.

In other words: don't worry about which banknotes belong to whom -- just keep an eye on the amount that's been spent in the "family-approved" category, and when that amount approaches the amount that your family last gave you, it's time to ask for more.

I suspect that it would be useful to "close out" that expense account (i.e., reset it to 0) each time you get a new contribution of money from the family, to make it easy to compare the account balance to the amount of the contribution. Most firms close their books on a periodic basis (monthly, quarterly, etc.), but I think in your situation, you would want to close the books when the balance of the "approved expenses" account gets close to (or exceeds) the amount of the latest contribution.

I will leave it to the real accountants here to comment on whether my idea makes sense, and if so, to provide suggestions on how to implement the details.

Best of luck,

M

 

[mg90]

I thought of that, but if my family gives me 1k euros, I have 2k euros and I spend 250 euros on something family-approved, I see on the balance sheet 2750 euros in assets, 3k euros in income and 250 in expenses, under one family-approved account, but I can't distinguish the assets unless I remember they've given me 1k, which should not be needed as the accounting system should remember it.

 

[karikamiya]

What you can do is have two different kinds of asset accounts, and call them something like "My money" and "Family Money". Then your total asset balance is 2750, but its broken down into two asset accounts, and then you'll be able to see and track what goes where since the accounts are mutually exclusive.

 

[mg90]

karikamiya, I thought about a similar solution before posting the original question. The problem which arises is that I have a pre-paid card, cash and a bank account, so I should create a total of six asset accounts, which sounds weird to me, because the total of cash, bank account or pre-paid card are separated into family and personal accounts. For now I think I'll go in that direction anyway, because it's the most convincing one to me, though a bit weird.

I'm not totally sure that the money of my family is an asset: I must consider the case in which my family asks the remaining money back because they need it. They are not also a liability, because I'm not required to give the money back if it's not an emergency. I must in every accounting configuration consider that family money is mine not in an economic way, but in a financial one: this makes me wonder if it's the case to create a rectification account of some sort, but my knowledge of accounting is not deep enough to solve this situation.

 

[mg90]

Rather than keeping track of different kinds of money (yours vs. your family's), perhaps instead you should keep track of different kinds of expenses, i.e., "family-approved" expenses vs. personal expenses.

In other words: don't worry about which banknotes belong to whom -- just keep an eye on the amount that's been spent in the "family-approved" category, and when that amount approaches the amount that your family last gave you, it's time to ask for more.

I suspect that it would be useful to "close out" that expense account (i.e., reset it to 0) each time you get a new contribution of money from the family, to make it easy to compare the account balance to the amount of the contribution. Most firms close their books on a periodic basis (monthly, quarterly, etc.), but I think in your situation, you would want to close the books when the balance of the "approved expenses" account gets close to (or exceeds) the amount of the latest contribution.

Afther some months of sparse thoughts and reading a good book about accounting (from Anthony, Hawkins, Merchant), I think I have to meditate more on your answer as it looks more convincing...

 

[Michael Myers]

Duality of money streams

Hi,

I think I have an accounting solution for you.
I understand the unique position of the multiple source and application of funds. At some moments you are juggling monies between different sources. The simplicity of just paying the funds outweighs the record keeping as to what should be where.

Can I suggest downloading Easy Street Accounting : this system has two main bank accounts and you can open up as many "Businesses " as you want. Enter the payments and inputs into each of the businesses ( they can be used to collect the source and application of funds ) the total of all the individual , lets call then , income streams will be the total of Bank 1 or Bank2 or Cash. ( credit card payments can be selected as a method of payment ).

So, in other words, imagine you have 2 Bank accounts and Cash on Hand - you can "group " the transactions of each activity in an Income Stream ( call this a business ). The system will report the activities of the bank as it pertains to each group ( very simple procedure - the system was built exactly to do this ). It can report in a "consolidated " format showing you the total of everything that ever happened , or, you can select which groups you wish to join together and report for.
The reports will show you the net bank(s) and cash on hand position of each group whether it is positive or negative and you will be able to manage your affairs with ease and confidence.

Do a google search on easystreetaccounting and check it out for free.

It will work for you