You don’t have to own a business to realise the importance of checking your finances at the end of each fiscal year, if only to ensure that you aren’t shelling out more than what you’re putting into your account. While many Bristol bookkeeping and accounting professionals like Wormald & Partners Chartered Accountants offer their services to get your financial records in order, there are some things about your finance, particularly in your financial statement, that you ought to know for yourself.
Cash Flow Statement
There are two basic concepts that form the structure of your monthly or annual cash flow: inflow and outflow. Cash inflow deals with your total income, be it from your job, a business, or any enterprise from which you gain, while outflow represents all expenses and debt payments that you pay out. You should always opt for positive cash flow (inflow>outflow).
Another element in your financial statement is the balance sheet, which revolves more around your wealth within a set period versus your actual financial activity (cash flow). Here you can see your assets and liabilities, as well as your net worth (the difference between the two), which can tell you how successful your financial planning has been for a given time.
Assets and Liabilities
Your home, car, boats, and other significant pieces of personal or property compose your assets, because they add monetary value to your overall wealth even while they’re idle. Investments are also part of your assets, which is why many people buy shares in businesses or enterprises. Your liabilities, on the other hand, are what you still owe, like power and water bills, mortgage and credit card loans.
According to Investopedia.com, your net worth is defined as “the figure that is your measure of wealth because it represents what you own after everything you owe has been paid off. If you have a negative net worth, this means that you owe more than you own.” If you want to keep away from a negative net worth, you can choose to increase your assets, or decrease your liabilities.
One of the best ways to make sure that your wealth doesn’t drop unexpectedly at some point through the fiscal year is to keep track of your finances regularly; hiring a dependable in-house accountant should help considerably. If you own a business, accountants are a great help, especially in managing matters, such as payroll in Bristol.
(Article Excerpt and Image from Evaluating Your Personal Financial Statement,Investopedia)