Making the most of KMyMoneyTable of Contents
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This and the following sections have had no significant updates since the very early versions of KMyMoney. While the basics of bookkeeping have not changed over the years, and there is nothing inaccurate or misleading here, there have been requests to update this area. If you have any specific suggestions or ideas for this, the author would like to hear from you, through one of the routes listed at the Support page at the KMyMoney web site
While much of KMyMoney might be obvious to a naive user, and you could go ahead, clicking some buttons and filling in some data, after a time, you might decide you have done it wrong and want to start again, even if you did read the documentation on each part of KMyMoney.
You will get a more efficient and effective system and much better use of your time if you first spend a little time planning how you are going to use KMyMoney, so follow the steps given here. This may seem very simple, and indeed, it is simple, but taking the time to assure that your understanding of how things work is the same as KMyMoney's will almost certainly save you time later.
Imagine your money as balls, or beans, and to stop them rolling around and getting lost 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 more important, the beans in 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 in the section on split transactions.
Most accounts, or pots, as described above, represent a measure of our “Worth”. The cash and goods represent our “Assets”, which also include any amount someone owes us for goods we provided or money we loaned to them. The money we owe to others, 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 where you live, or just how you want to analyze things. Each set of accounts would be handled separately.
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.