Three months ago I have started to develop personal finance application for myself. You can ask me, why you need another personal finance application?
The motivation behind the development is to replicate my excel sheet, which helps me to record income and expenses very quickly, without entering every transaction. This is possible with the usage of the following fundamental equation:
capital at the begining of period + savings = capital at the end of period.
Why the equation above is so important? Because we can start bookkeeping from the both ends: from the assets (I have 450 Eur in Cash) and from the transactions (I have bought a TV for 300 Eur). But at the end the both numbers should be balanced.
For example, at the start of period a have 1000 Eur in Cash. During the period I have bought TV for 300 Eur, and in my porte-monnaie is 450 Eur. If I write a balance equation I see:
1000 (Start of Period) – 300 (transaction for TV) <> 450. So I need to enter missing transaction for 250 Eur, then I have:
1000 (Start of Period) – 300 (transaction for TV) – 250 (other transactions) = 450. My balance is correct now. You see that we can make a bookkeeping without entering small transactions, an we can save the time.
Before the starting of development we need to spend time by collecting the requirements. The accounting has two types of entities: snapshots (or positions) and transactions.
Two main snapshots are assets and liability. For example:
– bank account
– loan for a car
The own capital can be calulated as assets minus liability. Typically the capital should be greater than 0.
The main transactions are income and expenses. For example:
– Dividends from stocks
– rent of house
If our income minus expenses greater than zero, than the value of our assets is increasing and we should update the value of assets.