Financial Transaction to Financial Statements

I usually ask my readers. Do we need to know how to prepare a Financial Statement in order to read it? Some may say Yes and some No. My answer is you do not need to have the knowledge of preparing a financial statement in order to read it. However having an understanding about how to prepare a financial statement will always help us to read it better. Definitely, I do not want to make you a book-keeper or an accountant. The next few paragraphs I am going to make you understand how to prepare a financial statement from a layman’s perspective. Let’s get started.

Finance and Money

W e have understood so far that in any transaction where –

  • Money comes in
  • Money goes out
  • Money supposed to come in
  • And money supposed to go out is called a financial transaction.


Let us imagine in front of A & M Furniture’s office(An imaginary company) I keep a big box. Whenever a financial transaction happens, that is whenever money comes in, goes out, is supposed to come in or is supposed to go out I write it on a piece of paper. Then I drop it inside the box. After some time the box will be filled with piles of paper which will contain financial transactions. I am going to take out each and every paper and read the financial transaction. I would like you to tell me whether the financial transaction is an expense, an income, a liability or an asset. Let me take out the first paper.

  1. It reads Salaries and wages paid. Is it an expense or an income or a liability or an Asset? Of course it is money going out of the business and it is an Expense.
  2. The second financial transaction is Electricity and Telephone bills paid. Again it is money going out of the business, so it is an Expense.
  3. The next transaction is Owner invests money. It got you confusing. Is it not? It is confusing because you have tried to look from an owner’s perspective. Let me remind you that when it comes to financial statement owner and business are treated separately. We are preparing this financial statement from business perspective. So, looking from business perspective business has borrowed money. This means it is liable to pay back. So when owner invest money it becomes a Liability.
  4. Next transaction is Payment received from sale of furniture.  Her money comes in the business so it is Income.
  5. Loan taken from Bank. It is borrowed money so it is a Liability.
  6. Equipment purchased. The business has purchased equipment and it has got a Fixed Asset. So it is an Asset.
  7. Interest paid on loan. Money is going out of business. So, it is an Expense.
  8. Purchase of Raw materials on credit. The business has bought something, so money is supposed to go out of business. This means the business is liable to pay someone. Hence it would get listed under Current Liabilities.
  9. Credit Sales to customer. In this case business has given credit to a customer. This means money is supposed to come in to the business. So, it will get listed as Current Asset.
  10. Land and Building purchased. It is a Fixed Asset.

If you got all the above ten right then you have just prepared a financial statement from a layman’s perspective. You are surprised right. You will have a few questions. Is that it? Is this what my book-keeper is doing? Is this what my accountant is approving? Is this what happens in finance department? Well pretty much Yes. However in a real life scenario, it will not be just ten or twenty financial transactions. It will be few hundred or thousand at a given point of time. But it does not matter what is the number of financial transactions. It may be millions, but it has to be an Expense, an Income, a Liability or an Asset.

Mortgage calculators online

Mortgage Calculator

When you are going to apply for a mortgage you know how much loan you want. But you do not know the rate of interest and the amount of installment you need to pay monthly for your mortgage. You do not need to rack your brains, as there are many options of mortgage calculator available on the internet. You can even make your own mortgage calculator on Microsoft Excel. I am going to review a few of the best mortgage calculators available online and also review the information you need to put in there.
What is a Mortgage calculator?
A simple mortgage calculator will have three essential fields. Some of the calculators will have additional fields as well. We will try to understand what these fields mean.
Amount of loan – The loan amount you need to get approved from the mortgage company.
Rate of interest – The interest that the mortgage company is charging. You can get the information online or from the brochure of the mortgage company.
Tenure – The number of years you will have to pay the installment before your loan is paid. The longer the term the lesser is the monthly installment. The tenure depends on your working tenure directly. So a 25 year old will easily get a 30 year tenure while a 40 year old will get the mortgage maximum for 20 years.
Property tax – Some of the mortgage calculators will have this additional field. This makes a more realistic calculation as property tax has to be paid immediately.
3 Best Mortgage calculators online
You can get amazing mortgage calculators on the internet and can use the same to review your mortgage. The ones I use to review and get good results are:
Mortgagecalculator.org – This is one of the best mortgage calculator tools. It includes property tax and PMI along with loan amount, rate and tenure to give a very realistic calculation of your installments. It even gives a comparison of monthly and bi-weekly payments. It also gives information about how much interest you are paying and the total amount of interest paid. According to me it is the best mortgage calculator available online.
moneychimp.com – This is a simple calculator and includes a graph to show you the decrease in debt over a period of time. It is best for people who are finance novices just because of its simplicity. It simply gives your monthly installment and is easy to understand. Just includes the three essential fields of Amount, rate and tenure.
bankrate.com – This also provides the simple calculator. The additional feature is the average mortgage rates highlighted on the sidebar. This will help you to bargain with the mortgage company.
Taking all these three calculators together will help you get the best rates and also know about the money you should keep handy when buying a mortgage.

Effects of Housing Fluctuations

Housing New Zealand

Housing New Zealand

To protect against fluctuations across markets, Economists, businesses and governments often put in place legislation to try and restrict certain parts of the market behaving in certain ways. Now this may seem authoritarian, but they will say that in doing so, it does stop financial and economic crashes, such as the one still being felt across the world. It is the exact reason why restrictions, specifically ‘loan to value restrictions’ were put in place by the Reserve Bank in October last year. In doing so, they hoped to decrease the number of people buying houses, to stabilise house prices and their relationship with bank lending. Such restrictions can’t be removed until those in power are satisfied that the housing market is slowing down on a sustained basis. This slowdown is intended to do exactly that to the market, and ultimately it affects those with little money and seemingly little buying power. Even though the market is still hard to predict as certain places face a future very different to others, we are very much at the mercy of how our neighbouring regions behave.

Slowdown in Housing Sector

Slowdown in Housing Sector

All markets react and behave according to others. After all, those in charge of the markets are us, and as things happen to one part of our lives they affect the others. The babyboomer generation are the archetypal example of such a phenomenon. At the moment, we have a huge generational shift happening, with many young people being unable to support the old. After the second world war finished there was a huge surge in the number of pregnancies, as people celebrated coming out of such a devastating time. It is no surprise then, that as a result of the Easter holidays and Anzac Day, house sales plummeted according to Economists. However, this goes no way to reverse a growing housing trend across the country and compared to this time last year, the amount of house buyers are down. The only saving grace is that house prices are up on this time last year. The one piece of information to resonate is the continued activity of buyers in the million dollar and over category, showing that despite hardships to the rest of the nation, the wealthy don’t get affected.

Time is Money

Time Management is of utmost importance. Time is a scarce resource on the planet.

Time is money

Time saved is Money Saved

The first and foremost thing to do is to manage time. Effective time management does not come naturally to most of us. If you concentrate on managing time it can be easy. I have realized by making notes and following best practices

Here are some tips easy to follow and will go a long way in making you a success.

  1. Time is precious – Time is more precious thing. Time which is spent cannot come back. So live in the moment and use it very effectively.
  2. Setting Goal – First you should set a goal. If do not where to go how can you make plans. So first decide the destination.
  3. Plan your time – Plan on how to maximize the use of time. Stop being lazy and seize the moments.
  4. Deadlinesare essential – We focus more on producing quality work. Bartering time with quality is not the best idea. Setting deadline actually helps you think better and produce quality.
  5. Prioritizing – Always decide what to do first and what to do last. This helps in managing time better. Do the most important things first and the least important last.
  6. Breaks – Taking rest in between the work actually increases your productivity. Working continuously can take a toll on your health too. So take a break.
  7. Distractions – Avoid the elements that take your focus away from tasks.
  8. Routine – Having a well ironed out routine helps in effective time management.
  9. Ability to say NO – Say No to things which are either not your priority. Do not keep too much on the plate.
  10. Check to see – Measure your own effectiveness by checking the completed tasks. Reviewing helps a lot to manage time.

Managing time is not that difficult. It only takes a bit of time. It will make you rich!!!!

Tips to buy your first House

Buying a house is a really big decision. It is difficult when you buying for the first time. So, you need to be very methodical. There are many things you need to keep in mind.

Tips for first time buyers

Some of the things to be aware of when going to buy are:

  • Budget – First you need to check your purse. The question to be asked is – How much monthly payment is affordable. Also check on the total cost of the house.
  • Amount of Mortgage – The first thing to check is the amount of mortgage you qualify. You can check online or can check with a local bank. Do not go for taking the full credit amount available. The ideal amount is around 60 percent.
  • Hire an Agent – When you are buying a house for the first time hire an agent. It is always better to go for the good agents. You might save money eventually if you hire a good agent. It’s easy and the agent will do the research for you.
  • Narrow down the search – Be specific where you want to buy and what kind of facilities you require. This will help to narrow down the search criteria. Also it helps to know your preferences.
  • Compare offers of Loan – Make it sure to compare offers from different banks and financial institutions before signing up. It will help you save some money on interest.

Is minimalism going to save the economy?

Support New Economics

For a long time, minimalism was a concept people had heard of only in art. It is everywhere now- minimalism has taken over almost all parts of our life and for good reason. A large part of all our lives is spent trying to accumulate wealth, and material products that we might not even have any need for. As a culture, we have started conditioning people into thinking that they need a lot more things than they actually do- the only way we can keep a capitalist economy actually going.

A capitalist economy cannot be sustainable over a long period of time- the structure is crumbling, and we have already started seeing the cracks. This might explain why a lot of people are ardently supporting the cause of “new economics”. New Economics is more sustainable, and it is highly minimalist. The basis of this form of economy is not just wealth accumulation, but it is the well being of the people as well as the planet.

We need a new way of measuring wealth, so that we can redefine progress. A lot of economists and scientists are not entirely too positive about where we are headed, as a species. Embracing new economics might help take us in a completely different direction- one that might actually save the earth.

Social Business – Possibly a New Way for Capitalism

After my last blog on TOMS shoes and their social business concept, I had several discussions about this idea of a ‘social business’. While I don’t want this blog to get a general educational twist, there was so much confusion about this that I’d like to use this blog for a short insight.

What is important, first, is that social business like we talk about with the shoe manufacturer TOMS has nothing to do with IBM’s ‘social’ business. IBM is all about making their electronics social, in the sense of focusing on connecting people, facilitating communication and exchange. The ‘social’ in ‘social business’ is directed at a wider societal dimension, aiming at improving the lives of individual or groups of people.

The general idea was developed by Muhammad Yunus, who won the Peace Nobel Prize in 2006. In a nutshell, instead of being only driven by profit maximization, social busniesses are supposed to be geared towards the improvement of society, fighting poverty and being sustainable. Therefore, investment in such a business should not gain interest but be paid out 1:1 and all profits should be invested either in the business or into other social businesses. The target markets are usually education, housing, other welfare provisions but can also include infrastructure etc.

Muhammad Yunus, Inventor of Social Business

Now, the idea sounds really good but, as I wrote earlier in my blog, there are some shortfalls. In particular, the principles of being a social business are rather vague and nearly anyone can claim to be a social business. But, possibly, this is a way forward as old-style capitalist mechanisms that are so dependent on everlasting economic growth run out of steam.

TOMS Shoes and the Economy of Social Business

Really interesting debate around the social business model that TOMS shoes has taken up in this article. I think it’s important to discuss this and take a look at the implications of these models in the market and ask if they really make a significant difference. A marxist critique mentioned in the article which I’ve also managed to watch by Zizek harshly criticizes this model and its implications for development in impoverished countries.

toms shoes and social business model

My problem has always been that they give these shoes to people but they are made poorly in China. I mean the quality isn’t half bad but the issues surrounding human rights and labour rights in China are just as bad as the countries that they are giving the shoes to. I don’t know if it really solves any issues besides promoting the triple business model that seeks to satisfy everyones needs, Profit & people. I don’t think it can really work this way, the sweatshops will continue to function and the shoes will be continually produced for a high profit by Chinese labourers who are not compensated properly. I much prefer something such as the Adbuster shoe which looks more closely at the equality around the labour process than the actual charitable giving as the social component of their business.

Frugality Follow-up

To add to the conversation my previous post started I want to write more about being frugal this week.

This story from the NZ Herald supports my assertion that most people struggle to reign in their spending habits and make smarter, informed, conservative decisions when it comes to spending. We’ve all seen price-match offers in various stores throughout the country. They always read ‘if you can find a better price elsewhere, we’ll match it!’ It’s becoming apparent that this isn’t as a good a deal as it sounds. According to the article, only 5% of people bother to even seek out alternative prices at other stores. It seems that these sorts of offers are merely serving to simply drum up some consumer confidence.

Happy 3d person - puppet, making shopping

It seems that being frugal and engaging in smart-spending is as tough as ever but another thing I wanted to talk about was a short-term but incredibly helpful solution to the problems of balancing budgets. Ferratum is a company who offer ‘confidential, fast, easy loans.’ And they really stick to their slogan. From time to time we’ll all fail to take care of a finances by giving in to the temptation of spontaneous splurge spending so it’s great to see that there’s a short term solution. As always with these kinds of services they must be used infrequently and with caution, but Ferratum is reliable and, speaking from experience, can be a real (short term) life saver.

The foreboding of frugality

As the disposable income families can enjoy each year seems to be forever dwindling, I enjoyed finally seeing some writing about the benefits of frugal living.

Frugality is the ability to really analyse and consider what you do and don’t need to spend money on. And NEED is the key word here. So many people will say things like ‘I can’t live without my Starbucks coffee every morning’ or ‘I need my subscription to Netflix or what would I do in the evenings?’ It’s the kind of thing we hear (and probably say ourselves) on a daily basis. But what’s the truth at the heart of it?


Of course, when you look closely, foregoing that overpriced latte in the mornings is not going to kill us. And if we can’t binge-watch back to back episodes of Game of Thrones, we’d surely find some other way to enjoy our time. So why is frugality such an elusive reality for many people? This interview with Frances Ronowicz holds some great insights and good (yet admittedly tough) lessons for all people looking to tighten their belts and reign in there expenses. With nearly half the world’s population surviving on less than 2$ per day we really are living in prosperity and abundance – now if only we can figure out a way to cut back all the excess.