 personal finance presentation, personal financial statements and bookkeeping tools. Prepare to get financially fit by practicing personal finance. When we get to the point of actually creating or compiling the financial statements, the balance sheet and the income statement, we wanna think about the types of tools we can use in order to do so. So the first thing we might think of is, are we gonna be compiling these financial statements by hand with paper and pencil or are we going to be using some kind of computerized softwares to help us with the process? Typically at this point in time, more and more, we're gonna be leaning towards some types of tools to help us to put together the financial statements if nothing else, often useful to use some kind of spreadsheet program, such as Google Sheets or Excel. We might then use other tools to help us to actually compile the data from the financial institutions into and help us to sort it into financial statements. We could use tools such as what I would call two major categories I'm gonna group these tools into to actually help us compile the balance sheet and the income statement. One is normal accounting and bookkeeping software, software that we would typically think of when we think of the bookkeeping process for a business that might include for businesses like QuickBooks or it might include something like zero or wave accounting, things that can connect to the bank but they're gonna be using a double entry accounting system to enter transactions on a transaction by transaction basis and then compile the financial statements. Now notes, you can use these softwares although they're used typically on the business side for the personal side and you have some of the same advantages of using a double entry accounting system to give you more assurance as we enter the data in that format. The other option to use software that can make things a little bit easier and also connect to the financial institutions but in a different way is what I'm gonna call financial or balance sheet software. This is software that is usually for like investment type software meaning it's kind of future oriented. It can also connect to the financial statements but you're not using the double entry accounting system but instead pulling in the ending balances. It could be a little bit faster to use but it doesn't give you the same kind of assurances. So we'll talk a little bit more about that in a second here but just realize that when you're looking at softwares you wanna categorize them into these two main categories I would think of them at these two main categories and then think about which would be best for you based on your particular needs. Then you have other software which I'm gonna call the budgeting software which may be something that you can use to complement these items up top or maybe the budgeting software will be in these packages up top. In other words, once you think about software to compile your financial statements your past history into balance sheet and income statement you wanna think can that same tool be used to help you with the budgeting process in the future or do I wanna think of other software that can help me with the budgeting process? In my opinion, no matter what accounting or financial software you use to compile the financial statements Excel or Google Sheets is gonna be part of your process generally to then make the budgeting software and then you might use some other software too to kinda supplement that process. So let's go over this in a little bit more detail. What if I was to use accounting or bookkeeping software something like a QuickBooks, a zero or wave accounting? What does it actually do? Well, you can think about it in this way if we look at our balance sheet we're gonna say or we look at our bank statement we got a mock bank statement on the right hand side you would say it can connect to the bank and you might say can I connect to the bank and make it as easy as possible if I use accounting software like this you can but when it connects to the bank notice what it's doing is it's pulling in the data from the actual transactions meaning it's gonna record the deposits and the withdrawals and it's gonna do so in such a way that if you record everything correctly it'll have the end result that will be the ending balance on the balance sheet. So in other words, it's not gonna create your balance sheet by just pulling in the ending balance up here it's gonna create the balance sheet by entering the transactions to result in the ending balance which means you're gonna have some issues when you first start the accounting records to make sure that you're in balance from the get go from the start so that everything will roll forward correctly. That can be a little bit more complex it's not too bad but originally starting up something in the accounting software can be a little bit difficult because you do need to set up those beginning balances. So it's gonna record individual financial transactions to create the financial statements and it's gonna create both the balance sheet and the income statement. So as you enter your cash inflows and outflows it will then populate using the double entry accounting system both the balance sheet and the income statement and you'll be able to generate reports not only generate reports but then drill down on those reports and see the detail as to what you included in those particular accounts. So you have a lot more information at your fingertips to be able to actually build it from the data. So we're actually taking it from the data down here it creates both the balance sheet and the income statement. It uses the double entry accounting system that helps reduce errors. So the double entry accounting system helps us to record each transaction basically properly. It's the biggest check what they call an internal control in essence against making errors. So the accounting software forces you to be in balance as you record each transaction in essence and therefore you've got that big check against an error when you do the data entry process. May be more time consuming to enter data. Now when you first set up the accounts and something like QuickBooks it's a little bit more time consuming because you're gonna feeding in the data down here and you still gotta kind of add that data and assign it to a particular account. You gotta set up your chart of accounts and you gotta make sure that your beginning balance is set up properly. Once that's all done the original setup process is done it's pretty easy going forward and you can use the bank feeds but it also means that you're gonna have to coincide any differences between a cash and a cruel basis that you're going to be using so that you make sure that you are recording things in balance, it's gonna force you to record them in balance which means you're gonna deviate from a complete cash basis from time to time when necessary for certain transactions which no matter what we do we always deviate from a cash basis when we buy a home even if it was for cash or something like that. And so we're gonna have to kind of understand those a bit better. Whereas if you use something like the financial software which is more like software that connects to the bank but it doesn't take the detail we're not.