Ledger commander and Scutum ledger are designed to handle bank accounts. Nowadays, we use credit cards, google pay, and money transfer more and more but we still use cash. How can we handle cash in Ledger commander?
Option 1: Ignore the cash
When you withdraw money from an ATM then regard this money as an instant spending. You cross the boundary of your ledger. Cash is outside of your ledger. If you spend the cash, you do not have to do anything because the transaction happens completely outside of your ledger. If you deposit cash into your account then you cross the ledger boundary again so it represent an income.
This method is acceptable if your cash is quite small relative to the rest of your fortune. It is easy to manage as money withdraw and deposit always appears in your bank statement. If you use your credit card everywhere then cash is not important for you.
Option 2: Create cash account
If you use cash regularly then the 1st option is not suitable for you. Imagine that you withdraw a large amount of cash and you use it for 3 months. It would be silly to say that I have one big spending in the first month but no spending in the 2nd and 3d month. If you have paid attention for the previous videos you may already know the solution, create a cash account. Actually, Ledger commander contains a cash account in default.
A cash account is very similar to a normal bank account but there is no bank which can you give you an account history or a balance. So you have to record your cash transactions manually. For example, you can use the "Google keep" app as your mobile is always with you. Just write the date, the amount and some comment. At the end of the month you can write this transactions into Ledger commander manually. You have to count your money at the end of each month manually as well to check if the actual balance and the calculated balance matches.
Introducing a cash account means that cash is now part of the ledger. Now a cash withdraw is not a spending any more but a "Transfer to own account". The same goes to cash deposit. Remember that every transfer between own accounts has two parts the source account and the target account. Let's say you deposited $200 on your bank account. You will see this transaction in your bank account history. If you select this transaction and press the "Create pair for transfer" button then the pair of this transaction will be created.
Instead of using the "Google keep" app, I record the cash transactions in an excel file. Actually I create a cash account history for each month. At the end of the month it is easy to import this history with the other histories. The structure of the history can be anything, you just have to add this structure to the "History types" tab. Even simpler, use one of the already existing history type.
The drawback of the cash account that it needs manual effort. You have to record the cash transaction within a day, otherwise you just forget it.
Option 3: Cash account with lower limit
The previous option is precise but takes some effort. You can reduce this effort by introducing some lower limit. Let's say that I do not want to record transactions below $5. These are the transactions what I forget anyway a lot of time. At the end of the month the actual balance and the calculated balance will be different so I add a transaction to correct the difference. In the "Account" tab there is the "Insert a correction row" button. If the difference is higher than $30 I start to think if I forgot to record a larger cash transaction or actually there was a lot of below the limit cash transaction in this month. Naturally you have to decide about the limit.
Other considerations
- You can have two or more cash accounts as well. For example, you like fast food but you also wants to loose some weight. You have two wallets and one of them is only for the fast food spending. You put $150 into this wallet in each month and if it is out then you stop going to McDondald's. Now you have two separate cash accounts, so it is important which of your wallet you used.
- It is up to you what is inside of your ledger and what is not. For example, I got cafeteria benefit which can be spent only in restaurant. The amount is small so I decided not to bother with it.
- You may have foreign cash as well. It differs from your base currency as it is kind of an investment. You can read about investments in upcoming posts.