A Kid's Guide to Accounting
Written by Eddy Hood
Managing money involves keeping track of the income you earn to make sure you have enough money to cover your expenses. Businesses have to keep track of their finances with careful (bookkeeping). This type of accounting requires a system of writing down all financial transactions. By recording these transactions, it's then possible to summarize, analyze, and create reports about how well a company is managing its finances and making ends meet. Just like a business, people need to perform personal accounting to make sure they manage their money effectively.
Finance has a few different meanings. Money management activities fall under the broad heading of finance, including earning money, investing money, using credit wisely, budgeting money to meet expenses, and using bank accounts to save and manage money. Both businesses and individuals need to keep a careful eye on their finances to make sure that revenue is enough to meet expenses. Revenue is the money coming in, either from earnings or investments. Expenses are the money going out, for both necessities and extras.
You might not use all of the financial tools that an accountant would use to manage a company's books, but accounting is important for anyone who wants to manage money efficiently. Accounting is simply bookkeeping work to manage finances, keeping track of revenue, expenses, investments, trends, and goals. By tracking and analyzing, it's possible to plan for the future and set goals. Understanding your cash flow (where your money comes from and where it goes) puts you in a solid position to make decisions about purchases, too.
The history of accounting dates back to a European merchant in the 15th century who devised the first system of keeping track of credits and debits in journals and ledgers. Accounts still use these tools today to perform bookkeeping tasks. Because keeping track of finances can be complicated for companies, many of them hire professional accountants to perform this service. Bookkeeping involves recording all of a person's or company's transactions, such as sales or other incoming money and bills or other outgoing money. Double-entry bookkeeping simply means that a bookkeeper records entries to at lest two accounts at a time.
Keeping current and detailed notes serves as a complete record of finances. A balance sheet shows financial data for a specific period of time, such as a month, a quarter, or a year. A complete balance sheet will have all debits and credits recorded on it to show current financial position. A general ledger holds balance sheets and other pieces of someone's complete financial position, such as documentation about debts, investment interest, and assets (items owned).
A personal budget is a finance plan. Your budget should include the amount of income you expect to receive over a specific period of time, such as a month. Next, you need to list all of the expenses that you will have to pay over the same period of time. For example, if you owe a friend money and you make payments each month, this would be an expense to list. Optimally, your expenses should not be more than your income. This will allow you to save some of your money, with some left over for other spending, too.
You can learn about accounting by studying it in school. Accounting games and activities can also help you explore the world of debits, credits, revenue, and expenses. Even if you grow up to own a business and you hire an accountant to help you with your books, it's still important for you to understand the basics of accounting to keep your professional and personal finances healthy. Quizzes can test your knowledge of accounting terminology. With online games, you can manage pretend finances for businesses, recording information and making financial decisions.
Links to Help Kid's Master Accounting
- Guide to Accounting for Kids and Teens
- What is Accounting? Learn Basic Accounting Lesson
- Accounting Fun Facts
- Definition of Accounting
- The History of Accounting
- A History of Accountancy
- Determining Your Budget
- 4 Money Lessons for Children to Master
- Managing Money: Create a Budget
- Hands-On Banking
- It All Adds Up
- Reality Check: What Lifestyle Do you Want?
- Practical Money Skills Games
- Hip Pocket Skills Games
- So You Want to Learn Bookkeeping!
- Debit Versus Credit Cards for Kids
- Credit and Debit Notebooks
- Teaching Children About Credit, Debit Cards
- Business Basics Program
- Profit and Cash Flow Explained
- Accounting is a Kids' Game
- Balance Sheet Example
- Budget to Save: The Balance Sheet
- Building a Healthy Balance Sheet Early in Life
- Teaching Your Child about Money Management
- Personal Finance Lesson Plan