Budgeting prototype

[Darin Willits]

On Fri, 2003-09-05 at 20:11, Dale Alspach wrote:
> 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. 

The key idea in the prototype was to express delta's for each category. 
I am not entirely convinced that the budget should have to define *how*
a particular target will be met only that that is the target.

I was kinda thinking that once you had your targets expressed in the
budgeting workbench we could write some reports to take advantage of
that information to give the user a better picture of their finances.
Some that I can think of would be

1) forcasts - where will I be in time X.  Based on the starting balance
for that category and using the budgeted targets where will I be in 6
months (for example)

2) planned vs actual - how much do I have left to spend, or how much did
I blow it by last month etc.

These "reports" could also be incorporated into the workbench itself to
make it easier to initially tweak a budget into proper shape.

You are probably right though that each category should store the
opening balance.  It might make things a little easier down the road as
more of these "advanced" features get added.


> 
> 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.

You are absolutely %100 and in every way correct here. ;-)  My numbers
make no sense as shown in the prototype.  This was due I think to my
being a little fuzzy on how to account for the 4 different account
"types" (Asset/Liability/Income/Expense), in the budget.  

In the Quicken world (sorry this is my only frame of reference... I'm
not really an accounting guy per-se) everything boils down to either an
Income or Expense in terms of the budget.  This makes it easy to see the
total budget outlook with the equation:

Total Income - Total Expenses = Budget Balance (hopefully $0.00)

This assumes that things like Savings Goals, Loans etc are considered
expenses.  Is this how we want to look at things as well?  In this case 
the totals section at the bottom of the workbench would make more sense
maybe if it looked something like (new numbers out of the air):

                                 Jan   Feb  March   etc...
Total Asset Accumlation:         $100  $100  $100   
Total Liabilities Reduction:     $200  $200  $200  
Total Income:                    $1000 $1000 $1000
Total Expenses:                  $500  $500  $500
------------------------------------------------------------------------
Budget Balance:                  $200  $200  $200



> 
> Perhaps someone with more accounting experience/knowledge could comment on
> this.

Definitely, I am no accountant (as my chequebook will attest!) so I do
appreciate any and all input.
  
Cheers,

Darin