Budgeting prototype

[Derek Atkins]

I'm not convinced of this.  When I budget "$250 for food" I
don't really care whether it's being paid for by cash, check,
credit card...  All I care amount is that I'm spending $250
on food.

-derek

Dale Alspach <alspach at math.okstate.edu> writes:

> Incrementing a liability or asset account as it appears bothers me. 
> 
> >Actually, the $200 budgeted for the credit card in this example is not for
> >a single bill but rather the amount that this account should change over 
> >the designated period (monthly in this case).  The intent is to show that at
> >the end of the month I want my credit card balance to go down by $200.00.  
> 
> >Say I started out with $1000.00 balance on my visa.  In my budget I want to
> >show that each month I am going to decrease that amount by $200.00  It may 
> >be that I spend $100.00 for a (posh) dinner out and use my visa to
> >pay for it but I would expect to pay that bill at the end of the month 
> >and tack on $200.00 to decrease the outstanding balance and meet my budget.
> 
> It seems to me that a budget has to have some double entry consistency.
> That $200 has to come from somewhere: income, asset conversion or
> borrowing. If the budget is going to make sense from a liability, asset,
> equity point of view, I should be able to dump in my financial position at the
> beginning of the budget period and then run a balance sheet for six months
> into the budget year to get my expected position. That balance sheet is worthless if I am able to
> create or destroy assets and liabilities out of nothing. 
> 
> To make this work the budget system has to either require offsetting
> entries for adjustments to assets and liabilities or there will need to be some
> automatically created "slop" entries. Looking at the January column in the 
> prototype shows the inconsistency.
> 
> 100 is being added to a savings account, 200 is being used to pay down a 
> debt, 200 goes for rent, 200 for food, and another 100 is is being added 
> to assets for a holiday. It looks to me like 800 has been allocated so the 
> total ( net )
> should be 1200 if the total means unallocated income. The real problem is 
> that the bottom summary does not make sense once liability and asset 
> adjustment is in the budget. As listed only two entries were actually 
> expenses, rent and food, so expenses should have been 400, dreaming (slop) 400, 
> income 2000.
> 
> Perhaps someone with more accounting experience/knowledge could comment on
> this.
> 
> Dale Alspach
> 
> 
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-- 
       Derek Atkins, SB '93 MIT EE, SM '95 MIT Media Laboratory
       Member, MIT Student Information Processing Board  (SIPB)
       URL: http://web.mit.edu/warlord/    PP-ASEL-IA     N1NWH
       warlord at MIT.EDU                        PGP key available