Private profit and loss account

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In the private profit and loss account (including private income statement or income ) are for an individual or a private household, the income and expenses faced a certain period of time (months or years). The balance of income and expenditure results in the wealth creation potential or the decline in wealth. The private profit and loss account is an important methodological basis when preparing a private financial plan .

Development of a private profit and loss account

Example of a private profit and loss account

In the list display, expenses and income are simply listed and netted with one another. In the account display, the income is shown on the left and the expenditure on the right, similar to a balance sheet.

Preparation of a private profit and loss account

In contrast to the preparation of a profit and loss account in companies, there are basically no regulations for the presentation and calculation methodology for the private income statement. Expenses and income are recorded directly from deposit statements, pay slips, cash books, etc. Similar documents and presented either according to the gross or net method.

In the case of the net method, expenses and income are only booked separately to the extent that they were caused by separate incidents. Wage payments are therefore booked net as income, the taxes and social security contributions that have already been deducted are not booked as expenses because they were not collected separately. The advantage of the net method is that it is easier to create using account statements and cash books.

With the gross method , income is shown before withholding taxes and social contributions are deducted; these expenses are booked separately. The gross procedure is more complex to prepare, but the income statement also allows the analysis of tax effects on asset development.

For the purposes of private financial planning, the gross method is always used because it is more informative. Since a private liquidity calculation is also regularly created in addition to a private income statement , it must be ensured that the same methodology was used for both sets of accounts.

Differentiation from private liquidity calculation

In the private liquidity calculation, income and expenditure are compared, in the private income statement expenses and income. While income and expenses change the liquidity of a household, expenses and income lead to changes in a household's equity. Both effects can occur simultaneously, but also separately from one another.

  • Deposit and income: z. B. a landlord receives the rent
  • Deposit, no income: e.g. B. Taking out a personal loan
  • Payout and effort: e.g. B. Payment of loan interest
  • Payout no effort: e.g. B. Repaying a Loan

The private liquidity calculation for a household can therefore result in a liquidity surplus in the same period (the household has become more solvent), at the same time the private income statement shows a consumption of assets (the household has become poorer). This effect often occurs when assets are sold at a price that is below the value previously recorded in the private balance sheet.

Analysis of the private profit and loss account

Using the private income statement and with the help of the private balance sheet , numerous findings can be gained about a household:

  • Development of total wealth in a period, also called wealth creation potential. This corresponds to the change in equity in the private balance sheet from the beginning to the end of the time period.
  • Profitability of various assets
  • Relative importance of various asset components for the development of total assets
  • Return on pure investments

Areas of application of the private profit and loss account

In private financial planning, the income statement is used to check whether, how and to what extent a household is building up wealth (ie becoming “richer”) or is consuming its wealth (ie becoming “poorer”). This information forms the basis for decisions about the future investment strategy ( asset allocation and asset location ) and the savings rate.

literature

  • Günter Schmidt: Personal financial planning - models and methods of financial planning. Springer, Berlin 2011, ISBN 978-3642204586
  • CFP Board: Financial Planning Competency Handbook. Hoboken 2013, ISBN 978-1118470121
  • Jan Buschmann: Private financial planning: Analysis of the process in private financial planning. GRIN Verlag 2008, Kindle Edition
  • Jörg Paßmann: Key figure systems for private assets and finances: Transfer options for operational instruments. GRIN Verlag 2012, ISBN 978-3869431819