What exactly is a financial statement ?

I still remember vividly back in my secondary school days when I first came across the subject of accounting in the “Kemahiran Hidup” class. My teacher was trying to explain the basic accounting concepts to the students such as debit, credit, balancing the monthly financial statement, “bawah ke bawa” thing and needless to say, most of us couldn’t understand what he is trying to teach us. It was a boring subject to learn during that time and accounting looks like a very complex subject to master. I left my school days learning the few accounting chapters in “Kemahiran Hidup” class only with the impression that accounting subject is important for a company to grow and not for individual.

The second time I saw a financial statement is back in 2003, when I first read Robert T. Kiyosaki’s Rich Dad Poor Dad. It was really a mindset shifting book that I seriously recommend anyone who wants to master over their financial life. In Rich Dad Poor Dad, the author stripped down the financial statement into 4 boxes that look like this:

financial statement

Essentially, a financial statement consists of 2 parts, they are: (1) balance sheets(asset and liability); (2) income statements and expenses statement. Now this 2 parts financial statement is also known as the personal financial statement. A business financial statement has 4 parts, but business financial statement is a subject beyond MoneyLah.com and I will put it aside.

A balance sheet answers the question such as how much is my financial worth? For example, if I sold everything I own and paid all my debts, how much would I have left? My answer comes from taking the total of what I owe (liabilities) and minus the total of what I own (asset). This is also known as net worth.

The balance sheet has two columns. Assets, listed in the left column should contain the things that generate money.

Example of assets:

Rental fee collected from property

Profits generated from vending machine I own.

Royalties from my copyright patents.

Dividends from shares I own.

Etc.

Note: Contrary to the accepted accounting standard…. I will use the definition of an asset as thing that put money into pocket. This is the lesson from Rich Dad Poor Dad.

Liabilities, listed on the right column should contain the things that suck money away from pocket.

Example of liabilities:

House mortgage.

Car hire purchase.

Children.

And the list goes on.

Income statement contains information such as my salary and other sources of revenues.

Expenses statement contains information such as my expenses and debts that I need to service.

Having read many books on personal finance, many authors recommended that the readers write down or update their personal financial statement once a while to see how the readers are doing financially. Some authors even provide Excel spreadsheets file that can be readily downloaded and use.

For me, I would like to improve in this area a little further. It is good to use Excel, but then it troubles me when I don’t have access to my computer or change my computer.

I want to have a web application that I can access anywhere from the Internet, an application that allows me to monitor/update my financial progress, set my financial freedom plan, work on my financial report card, planning for retirement and discuss within a community of how to be financially smart.

Is there anyone who needs the similar web application to update their personal financial statement? I bet there is and I will only find later when the MoneyLah.com takes off.

Till then, I hope my fellow readers learn about what a personal financial statement is.