Step 4 - My Chart of Accounts and Income Statement

Step 4 – Practice the Recording Process Chart of Accounts and Income Statements (KCQs)

What insights have you gained from completing the recording process of your own personal transactions?  Will this be something that you continue and expand upon in the future?

Honestly, I quite enjoy this process. This is something that I’m familiar with because I have to help mum with all the paperwork for our restaurant. The main difference however is that I prefer more of old-fashioned pen and paper style, so using excel in this process is rather a refreshing new experience. Plus, it is more efficient and time-saving when adding all the numbers together and linking the formula together. Moreover, I enjoyed the practical side more than the theories and analysis which means that I can apply this knowledge to my daily activity.

The only challenge I have with this step is to find enough information from my bank statement. Mainly because I don’t like to spend much of money (coming from a girl, strange right?) and I only ever spend on the things that are necessary (however, my mum would say otherwise), which means that my account statement for the month is often quite short. So, I wasn’t sure if I could get enough transactions to do this process, but I guess it went well so far.

Another question I had was what to do next now that I have my bank statement? What chart of accounts do I use? Knowing me, I would choose what’s easiest and the quickest, so I went a simple chart of accounts. Which the course coordinator is so kindly provided the template, so this process is pretty easy. The frustrating part is writing it all down and labelling everything, and making sure that I have not missed any of the transactions. Also, it was rather confusing for me as to what categories the transactions would fall under. For instance, would a credit card payment fall under general living expense or separate as credit card expense? Then again, the examples providing in the assignment guidelines label credit card payment as general living expense, so I just decided to follow the examples.

Summary of what valuable lesson have I gained from this process:

1.       I have finally realised that I actually have this much of income deposited into my account! Though I wonder where it all went?

2.       Rent is pretty cheap compare to everywhere else! Rent meaning contributing to my parent, and yes, I still live with my mum. Don’t judge!

3.       Looking at this month, I am not doing too bad in terms of managing my expenses and savings. Mum would be proud!

4.       I have learned so much appreciations for those people who are in this professions, you have certainly earned my respect for the effort.

Another thing is that I have yet to pay for car expenses this month such as car legislation, insurance and car services, oh and I have yet to do my Christmas shopping. So next month expense would be shocking!!

As for the future, yes, I will definitely continue on expanding this knowledge because not only will I be able to cooperate this into my daily lives. I can also put this to a good use for my family business or maybe if opportunity comes for my future work roles.

What is the chart of accounts so far, as illustrated by this example?  What is your own chart of accounts?

My chart of accounts is set up based on the example that was given in a simply version. Mainly because I am not confident with doing the detailed one. I have provided the examples of my chart below.

Date	Amount ($)	Transaction Details	Category in my chart of accounts
1/11/2017	-38.08	GROCERY EXPENSE	2-5 General Living Expenses (Food, fuel)
2/11/2017	-257.21	CREDIT CARD PAYMENT	2-5 General Living Expenses (Food, fuel)
3/11/2017	-0.39	CREDIT CARD REPAYMENT PROTECTION	2-5 General Living Expenses (Food, fuel)
3/11/2017	-75	JOHN WILEY & SONS AU MILTON AU	2-1 University Expense
7/11/2017	677.63	DEPOSIT SALARY JOB 1	1-1 Income - Salary and Wages
8/11/2017	74.11	DEPOSIT SALARY JOB 2	1-1 Income - Salary and Wages
8/11/2017	74.11	DEPOSIT SALARY JOB 2 (Back payment)	1-1 Income - Salary and Wages
8/11/2017	200	INTERNET TRANSFER	1-2 General Money Transfer
8/11/2017	-150	RENT PAYMENT	2-4 Rent Expense
8/11/2017	-75.39	CREDIT CARD PAYMENT	2-5 General Living Expenses (Food, fuel)
9/11/2017	-145	BPAY TELSTRA CORPORATION	2-2 Telephone Expense (Mobile)
10/11/2017	-99	DEBIT CARD PURCHASE HARVEY NORMAN COMPUTER	2-3 Technology Expense
14/11/2017	546.2	DEPOSIT SALARY JOB 1	1-1 Income - salary and wages
15/11/2017	-150	RENT PAYMENT	2-4 Rent Expense
17/11/2017	-8.55	GROCERY EXPENSE	2-5 General Living Expenses (Food, fuel)
20/11/2017	-49.8	GROCERY EXPENSE	2-5 General Living Expenses (Food, fuel)
21/11/2017	480.06	DEPOSIT SALARY JOB 1	1-1 Income - salary and wages
24/11/2017	-150	RENT PAYMENT	2-4 Rent Expense
28/11/2017	-30	TELSTRA - PREPAID MOBILE	2-2 Telephone Expense (Mobile)
28/11/2017	559.52	DEPOSIT SALARY JOB 1	1-1 Income - salary and wages
29/11/2017	74.11	DEPOSIT SALARY JOB 2	1-1 Income - salary and wages
29/11/2017	-200	RENT PAYMENT	2-4 Rent Expense
29/11/2017	1000	INTERNET TRANSFER	1-2 General Money Transfer

My Chart of Accounts
1 - Revenue
1-1 Income - Salary and Wages
1-2 General Money Transfer
2 - Expenses
2-1 University Expense
2-2 Telephone Expense (Mobile)
2-3 Technology Expense
2-4 Rent Expense
2-5 General Living Expenses (Food, fuel)
3 - Assets
3-1 - Cash at bank
4 - Liabilities
5 - Equity

What level of detail could you change in the chart of accounts shown in this activity?  Why might you want to do this?

As I have discussed earlier that I am not quite sure if I should label my credit payment as credit card expense of should it be general living expenses. Now, this about it more I should have change it to credit card expense, as it will display more preciseness in order for me to manage my account. However, the reason why I have chosen to combine credit card payment with general living expense because I would only use my credit card for purchasing online payment, mobile phone payment and other general living expenses. Which is why I have chosen to group all the transaction in the one category, however if I were to create chart of accounts for company I would then need to be specific.

Also, I am unsure how to categorise assets, liabilities and equity into the chart of accounts. So hopefully I will learn how to do that through the next exercise.

How might you analyse your Income Statement?  Has this exercise of recording your transactions through to the financial statements been useful for you?  If so, why; if not, why not?

Income statement are useful summary of chart of accounts which allows auditors to analyse the current financial position of the company. The purpose of income statement is to compare the profits or loss for the period, so from what I can see from the looking at my income statement for the month of November my total expense is less than my total income, which means that I am doing pretty alright in managing my expense. However, if I were to keep on creating my income statement for the whole year then I would be able to get a thorough analysis of my total spending for the year and total income. This would give me a clear picture or an overview of my financial situation for the year.

Not only that, I could compare statements of each months to identify what expenses are largest and why it was made. The analysis would then allow me to formulate a financial plan in order to keep the expense low which takes into the considerations the circumstances that effects the earnings for particular months, for example hours cut, sick or holiday leaves, etc.

All in all, I really enjoy this exercise the most. I do believe that it will become useful as it demonstrates not only accounting skills but also other skills such as how to use excel and linking the sheets together and the formulas as well. It was a good way to practice before moving on to the other hard part of accounting. What this teach me is that not only accounting can be use for business, it can also be put to personal use as well. This exercise has also allowed me to appreciate my parents more now that I have realise how expensive living costs is, so from now on I will not argue with my parents about spending again.

Side notes, I probably will not have kids any time soon either. 

Please click to see my chart of accounts and income statement below.
Excel-Step4

Thanks guys! Feed back is welcome!!