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1. What is double-entry bookkeeping?
Double-entry bookkeeping refers to recording increases and decreases in five accounts: assets, liabilities, capital, revenue, and expenses in a ledger according to the accounting equation ‘Assets = Liabilities + Capital’. If you move liabilities to the left in the accounting equation, it becomes ‘Assets – Liabilities = Capital’, which means that capital is net assets minus liabilities from assets. At this time, transactions that increase net assets (capital) are called profits, and transactions that decrease net assets (capital) are called expenses.
The ultimate purpose of double-entry bookkeeping is to collect records of increases and decreases in these accounts and create financial statements such as balance sheets and profit and loss statements. A balance sheet is a financial statement that shows the balance of assets, liabilities, and net worth at a specific point in time. An income statement is a financial statement that shows the total of revenues and expenses for a specific period.
2. Reasons for using a double-entry household account book
Our households have a lot of debt, ranging from credit card payments to car installments, credit loans, rental deposit loans, housing mortgage loans, and rental deposits. However, debt cannot be handled in the fasting bookkeeping household account book. At best, there is nothing you can do but write down the loan balance in the corner of your household account book. To that extent, debt cannot be managed effectively. If you fail to manage your debt, you may not be able to afford the snowballing interest charges. You may end up living a life of pouring water into a bottomless pit, spending all your hard-earned money on paying off interest. Eventually, your debt may grow to the point where you can't even cover the interest with the money you currently earn.
Our household assets are not limited to bank deposits and savings. There are financial products such as stocks, funds, bonds, savings insurance, and retirement pensions, as well as real estate such as apartments, villas, commercial buildings, and land. Fast bookkeeping is not able to handle various assets other than cash and deposits. It is not easy to manage the entire assets held by our household without a broad view and without continuously recording the changes.
Because fasting bookkeeping does not cover the assets and liabilities of the entire household, it is difficult to estimate the net worth of the household. I believe that it is important to know the net worth of a household for the survival of our family. The period during which a couple can earn income through labor is limited. At most until I'm 60? After that, you have to survive by using up the assets you have accumulated without any income. You can calculate the ‘survivable number of years without profit’ through net assets and monthly fixed costs. ‘Years of non-profitable survival’ is an indicator I created that indicates how many years you can survive with the net assets you have accumulated when your income stops. When the ‘non-profitable years of survival’ exceeds our remaining life expectancy, we are finally ready for retirement. You have achieved economic freedom.
3. Introduction to Cheokcheok Household Couple’s Household Account Book
I think the biggest barrier to double-entry bookkeeping is debits and credits. So, I wanted to create a household account book that can be used without knowing the concepts of debits and credits. In the Cheokcheok Household Couple household account book, when entering a transaction, you can enter a positive number if assets or liabilities have increased, and a negative number if they have decreased. You don't have to worry about debits or credits as long as you select a counterpart account that shows the cause of why the asset or liability increased or decreased.
However, in order to use this household account book, the ability to read financial statements is still required. And that too as a couple. If a couple manages joint assets and liabilities and only one party can read the financial statements, they will not be able to discuss their current financial situation and make decisions together.
In order to use double-entry household account books, consistent accounting standards are needed. And the couple needs to be familiar with the accounting standards to some extent. For example, the question of what to consider as an asset would be the most representative accounting standard issue. Should you view your car as an asset? Should luxury bags and watches be considered assets? Should furniture and appliances such as beds, wardrobes, and televisions be considered assets? Should clothes be considered assets? I created accounting standards that households could use and named them ‘General Household Accounting Standards.’ Under this standard, goods whose value decreases over time or with use are not considered assets. Cars, luxury bags, luxury watches, furniture, home appliances, and clothing are all treated as expenses.
When you prepare your family’s financial statements, you can see at a glance the ‘Numbers of Survivable Years Without Profit’ graph for each month. By looking at this, the couple can plan how much net worth they should save according to their retirement period. I didn't want to make you feel depressed by hanging on to the word 'survival'. So we also introduced the concept of net asset level. The net worth level starts from 10 million won to level 1, 20 million won to level 2, and so on every time the net worth doubles. When your net worth reaches 5.12 billion won, you reach level 10. I added it in the hope that I could enjoy financial investment like a game.
4. Conclusion
After writing an introduction to the household account book, I feel like it is not an easy task for a couple to write a double-entry household account book together. Anyway, my wife and I have been using this household account book (web version) for over a year, and thanks to it, we feel that our vague financial status and fears about the future have been replaced by a fairly clear picture of the current situation and specific goals.
In the future, I plan to post the accounting knowledge necessary for writing a household account book, how to use the household account book, and financial investment stories on blogs and cafes. If you get stuck while writing your household account book, please post it on the cafe. We will do our best to respond as quickly as possible.
Blog address: https://blog.naver.com/karimoon/
Cafe address: https://cafe.naver.com/mooncpa/
Double-entry bookkeeping refers to recording increases and decreases in five accounts: assets, liabilities, capital, revenue, and expenses in a ledger according to the accounting equation ‘Assets = Liabilities + Capital’. If you move liabilities to the left in the accounting equation, it becomes ‘Assets – Liabilities = Capital’, which means that capital is net assets minus liabilities from assets. At this time, transactions that increase net assets (capital) are called profits, and transactions that decrease net assets (capital) are called expenses.
The ultimate purpose of double-entry bookkeeping is to collect records of increases and decreases in these accounts and create financial statements such as balance sheets and profit and loss statements. A balance sheet is a financial statement that shows the balance of assets, liabilities, and net worth at a specific point in time. An income statement is a financial statement that shows the total of revenues and expenses for a specific period.
2. Reasons for using a double-entry household account book
Our households have a lot of debt, ranging from credit card payments to car installments, credit loans, rental deposit loans, housing mortgage loans, and rental deposits. However, debt cannot be handled in the fasting bookkeeping household account book. At best, there is nothing you can do but write down the loan balance in the corner of your household account book. To that extent, debt cannot be managed effectively. If you fail to manage your debt, you may not be able to afford the snowballing interest charges. You may end up living a life of pouring water into a bottomless pit, spending all your hard-earned money on paying off interest. Eventually, your debt may grow to the point where you can't even cover the interest with the money you currently earn.
Our household assets are not limited to bank deposits and savings. There are financial products such as stocks, funds, bonds, savings insurance, and retirement pensions, as well as real estate such as apartments, villas, commercial buildings, and land. Fast bookkeeping is not able to handle various assets other than cash and deposits. It is not easy to manage the entire assets held by our household without a broad view and without continuously recording the changes.
Because fasting bookkeeping does not cover the assets and liabilities of the entire household, it is difficult to estimate the net worth of the household. I believe that it is important to know the net worth of a household for the survival of our family. The period during which a couple can earn income through labor is limited. At most until I'm 60? After that, you have to survive by using up the assets you have accumulated without any income. You can calculate the ‘survivable number of years without profit’ through net assets and monthly fixed costs. ‘Years of non-profitable survival’ is an indicator I created that indicates how many years you can survive with the net assets you have accumulated when your income stops. When the ‘non-profitable years of survival’ exceeds our remaining life expectancy, we are finally ready for retirement. You have achieved economic freedom.
3. Introduction to Cheokcheok Household Couple’s Household Account Book
I think the biggest barrier to double-entry bookkeeping is debits and credits. So, I wanted to create a household account book that can be used without knowing the concepts of debits and credits. In the Cheokcheok Household Couple household account book, when entering a transaction, you can enter a positive number if assets or liabilities have increased, and a negative number if they have decreased. You don't have to worry about debits or credits as long as you select a counterpart account that shows the cause of why the asset or liability increased or decreased.
However, in order to use this household account book, the ability to read financial statements is still required. And that too as a couple. If a couple manages joint assets and liabilities and only one party can read the financial statements, they will not be able to discuss their current financial situation and make decisions together.
In order to use double-entry household account books, consistent accounting standards are needed. And the couple needs to be familiar with the accounting standards to some extent. For example, the question of what to consider as an asset would be the most representative accounting standard issue. Should you view your car as an asset? Should luxury bags and watches be considered assets? Should furniture and appliances such as beds, wardrobes, and televisions be considered assets? Should clothes be considered assets? I created accounting standards that households could use and named them ‘General Household Accounting Standards.’ Under this standard, goods whose value decreases over time or with use are not considered assets. Cars, luxury bags, luxury watches, furniture, home appliances, and clothing are all treated as expenses.
When you prepare your family’s financial statements, you can see at a glance the ‘Numbers of Survivable Years Without Profit’ graph for each month. By looking at this, the couple can plan how much net worth they should save according to their retirement period. I didn't want to make you feel depressed by hanging on to the word 'survival'. So we also introduced the concept of net asset level. The net worth level starts from 10 million won to level 1, 20 million won to level 2, and so on every time the net worth doubles. When your net worth reaches 5.12 billion won, you reach level 10. I added it in the hope that I could enjoy financial investment like a game.
4. Conclusion
After writing an introduction to the household account book, I feel like it is not an easy task for a couple to write a double-entry household account book together. Anyway, my wife and I have been using this household account book (web version) for over a year, and thanks to it, we feel that our vague financial status and fears about the future have been replaced by a fairly clear picture of the current situation and specific goals.
In the future, I plan to post the accounting knowledge necessary for writing a household account book, how to use the household account book, and financial investment stories on blogs and cafes. If you get stuck while writing your household account book, please post it on the cafe. We will do our best to respond as quickly as possible.
Blog address: https://blog.naver.com/karimoon/
Cafe address: https://cafe.naver.com/mooncpa/
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