Chapter 3. Making the most of KMyMoney

Joe (joe1011010)

Revision 4.5 (2010-07-19)

While you could go ahead, clicking some buttons and filling in some data, after a time, you could decide you have done it wrong and start again, even if you did read the documentation on each part of KMyMoney.

You will get a more effective system if you spend a little time planning how you are going to use KMyMoney, so follow the steps given here.

Basic Accounting

Imagine your money as balls, or beans, and to stop them rolling around you keep them in a box, or pot. Accounting, or Bookkeeping, is the process of counting and keeping track of the beans in the pot, or several pots.

You have some money in the pot marked Cash. You buy some goods, so you take some beans out of the cash pot and place them into another pot marked Supplier. The supplier gives you some goods in exchange for the cash, so you take the beans out of the pot marked Supplier and put them in the pot marked Goods.

The goods have a value (the price you paid) so you still have the same amount of beans, some representing cash and some representing goods.

In this case you have two movements of beans, or transactions. Each transaction needs two entries, one to take beans out and one to put beans in. This is called double entry bookkeeping or double entry accounting. The recording of the transactions is done in a Ledger; each pot is known as an Account or Ledger code.

Now you take some goods and give them to a customer, who gives you some cash in exchange. The goods were worth some beans and, hopefully, the customer has given us more beans than that, so making a profit. To over simplify, the beans from the Goods pot come back as Cash, but we can split that as the Cost of Goods sold and Profit. This transaction has three entries; one side of the double entry has been split.

This will be covered in more detail later on in this handbook.

Defining the accounts (personal records)

Most accounts, or pots, above represent a measure of our Worth. The cash and goods represent our Assets; so does what we are owed if our customers have not yet given us the money. The money we owe, say if we had not paid our suppliers, are our Liabilities. These accounts are transferable to Cash and have a value.

Any pots that cannot be valued are Income or Expense. Our phone bill (or the phone company to which we pay the bill) cannot be valued; we know how much we have paid, but not how much anyone else has paid. We know how much our employer has paid us, but we do not know how much they have paid anybody else, or how much money they have left to pay us next month. Although we cannot determine an actual value for these pots, it is useful to monitor how much we have put into or taken out of each of them.

In some cases a supplier is a Liability, in others it is an Expense. This is something we need to consider and decide for each case. Similarly, you may set up a loan as a Liability, particularly if you transfer the money into your bank account, but it could be an Expense if it was to buy some furniture.

Consider how you want to track and analyze your income and expenses. This will help you decide how to set them up in KMyMoney.

Finally, consider if you want everything in one set of accounts, or two or more. This may depend on the legal framework or just how you want to analyze things. Each set of accounts would be handled separately.

Defining the accounts (business records)

There are similarities to setting up accounts for personal use, but there are additional considerations, including legal guidelines and requirements. KMyMoney does not explicitly address any of these issues, as it has been designed as a personal finance manager. In addition, these additional issues are not addressed in this handbook, but you must be aware of them if you are going to attempt to use KMyMoney for a business.