Personal Banking using accrual method
If I wanted to try the accrual method for my personal banking, how would I enter my salary?
For example, I get paid on the last Thursday of the month, and I pretty much know what it'll be. Should I:
Add in the next year's worth of monthly salary payments to my current account.
Add next month's salary each month.
Also, what if the value changes? For example I get a promotion or bonus, or if my job were partly or solely based on commission? Surely it's not acceptable to modify those existing "transactions"?
I'm wondering if I should have a separate "account" (imaginary rather than setting up an actual account, of course) for my salary? I could put the twelve months' worth of salary payments in there, and then as real money comes into the bank each month I "transfer" it to my current account?
I used salary for this example, but the same goes for any budget item - income and expenses.
Many thanks in advance.
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You would add your daily earnings every day. For example, you work full time job (8 hours a day) at /hour. At the end of the 1st day of the month, you'd add 0 to your salary account. You've earned it, even though its still almost a month till you actually get paid. So its accrued.
What if you don't get paid? You've accrued it already, its on your books, but not in your wallet. You might have paid taxes on it, etc. But you don't really have it. This is what is called "bad debt", and eventually, after you can show that the payee is not going to pay, you write it off - remove it from your books (and adjust your taxes etc that you paid on that income already).
Generally, it is a very bad idea to use accrual method of accounting for an individual or a small business. For large volume business using accrual mode solves other accounting and revenue recognition problems.
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