Tag: accounting

Uber accounting

I just ubered back to my hotel here in Charleston, SC. The driver asked me straight away what I do and I said, ‘accountant.’

The next question was not totally unexpected but it’s been a while.

“So what advice can you give me on personal money management?”

It’s not exactly an accounting question but I am familiar with this dynamic. A few years ago, I occasionally answered the career question with “economist” — which I never really was — and that usually resulted in “what should I invest in?” Which is even more of an non-sequitur.

So here’s what I said:

  • Keep careful track of your expenditures.
  • Make conscious decisions about changing those expenditures if you don’t like what you see.
  • Pay off your debt as quickly as possible.
  • Avoid credit cards.
  • Save as much as you can once you are debt free.

So I parroted Dave Ramsey.

Everything else is detail and circumstance.

I also heard something I’ve heard before from drivers:

“I really wish Uber would take out taxes from my pay. I hate trying to figure that out and putting money away for taxes.”

What a different world we would live in without withholding. Many people just cannot wrap their brains around withholding, the planning required if you are paid as an independent contractor or the freedom it provides. It’s shame that the easier system (pay with withholding) is also the choice that restricts your options.

But I guess that’s why it’s easier.

The Matching Principle

Get ready folks. This is the accounting-related post you’ve all been waiting for. If you do something all day long, eventually it relates to everything else.

In accounting, the matching principle says:

Expenses should be recorded during the period in which they are incurred, regardless of when the transfer of cash occurs.

Let’s take a few examples (and stretch them a bit):

  1. You get a legitimate bill in your inbox. According to the matching principle, you need to book that expense in your financials at the moment the service or good you bought was received, not when you finally pay it, perhaps weeks later. That money is spent, even though you are still holding it.
  2. Someone promises you money in writing, unconditionally, in writing. Boom! You show that promise as an asset as of the moment of their promise.
  3. You pay for 12 months worth of services today, in March. Well, you don’t show that entire 12 month bill as an expense in March despite the fact that the cash went out in March. You expense it out evenly over 12 months as a “prepaid expense.”

It’s a nice concept to bring over to other things: your time, your energy, your own resources. If it’s going to happen, then it *did* happen. Book it and move on. If you don’t like it, don’t try to change the fact of it happening. Rather, try to build up the other side of the equation so that it doesn’t matter as much.

You can’t erase it. (In accounting, that would be fraud.) It happened. Make peace, but act to reduce its significance.

Now flip all this on its head. If you know something is coming or is due, and you don’t realize it (book it mentally), you’re lying. It could be to yourself or to your shareholders (family, friends, colleagues), but you are definitely lying.

Match your knowledge with your actions.