Accounting Outline

Five Basic Accounts

1. Assets: things you own  
2. Liabilities: things you owe  
3. Equity: overall net worth  
4. Income: increases value  
5. Expenses: decreases value  

The Equation

Assets - Liabilities = Equity (aka Net Worth)  

Things you own minus things you owe equals your net worth. Consider all financial actions in the light of increasing your net worth.

Assets - Liabilities = Equity + (Income - Expenses)  

Assets

Cash/Checking   
Some Mutual Funds  
Other Mutual Funds/Stocks/Bonds  
Retirement Savings  
Car  
House  
Talent and goodwill  
*Accounts Receivable*  

Capital Gains in here?

Liabilities

  Accounts Payable  
  Debt  
  Taxes  

Net Worth

The guiding light  

Income

Salary  
Bonus  
Gifts  
Interest & Dividends  
Other  

Expenses

Fixed:

Debt Service  
Physical Plant / Utilities  
Insurances  

Variable / Discretionary:

Food  
Clothing  
Hobbies  
Donations  

Capital Gains

Resellable assets, such as stocks, bonds, houses, or cars, can change value over time. Some assets could increase in value, some could decrease in value. Capital gains are the profits from selling an asset.

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