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How to Use Spreadsheets for Accounting

While a budget says something about what will happen with a person’s money, an accounting tells us what actually happened. You make a spreadsheet in the same way you do when you make a budget. The only difference is that in this spreadsheet, you write down the income and expenses that actually occurred.

An accounting has larger consequences than a budget, because the numbers in the accounting spreadsheet are a picture of the actual reality. The budget only says something about what you want, or plan, to happen.

If the accounting shows that you have a larger income than your expenses, then you actually have a surplus—money left over that you can spend or save. This is positive, and you can continue your current lifestyle.

If the accounting shows that you have a lower income than your expenses, you could be in trouble. Then you’ll have a deficit, and you might lack the money to pay what you need to, if you don’t have enough savings. This is very serious.

If you experience a deficit, you have to make some changes. To cover the deficit you’ll have to take money from your savings account or take out a loan. In addition, you’ll have to change your lifestyle or get a job that increases your income.

Example 1

Mike Ross is making a spreadsheet to get an understanding of his personal economy for the last month. He had the following income and expenses:

Excel spreadsheet with Mike’s income and expenses from the previous month

Help Mike Ross make a monthly accounting. What would you recommend that he does to correct the deficit?

Excel document showing Mike’s accounting spreadsheet

Excel document showing the formulas used when calculating the accounting spreadsheet above

The income from his financial aid is much lower than he expected. He must therefore adjust his budget, or he won’t have enough money each month. He could also try asking for another $100 in support from Specter. If this does not cover the expenses, he could also ask for a raise from his consultant job for Harvey.

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How to Budget Your Money