Budget questions. (wordy)

[Chris Shoemaker]

On Tue, Nov 08, 2005 at 09:03:58PM -0500, Derek Atkins wrote:
> Chris,
> 
> most users I would bet enter a CC->Expense transaction when the
> transaction occurs.  So you enter your $2000 HDTV expense when
> you buy the TV, not when you pay off your credit card.  

Yeah, I expect this is normal usage.  Of course, that means that the
CC payment is straight from assets to liability, e.g. checking account
to CC account -- no expense accounts involved at payment time and you
wouldn't need to budget for them anyway.

> However
> if you're maintaining a balance on your credit card (or house loan,
> or student loan) you want to include that "cash flow" in your
> budgeting process.
> 
> No, paying down a house loan or a student loan is not an expense
> per se, but it is cash flow..  And many people want to budget for
> cash flow.  I consider this a must-have feature for a budgeting
> system.
> 

Well, the standard budgeting tool for planning cash flow is not the
cash budget, but you can make this work in a couple of ways.

Let's say you "buy" a car with a CC and you want to budget paying it
off.  (1) You could create a Car expense account and as you pay off
the CC, you increase the Car expense account.  It's like you're buying
it a little bit at a time.  or (2) You could pay the CC with an
asset->liability transfer, with *no record* of what the actual expense
was, and then use the CC liability account in the cash budget.

Personally, in this case I would prefer (1), since it records the
expense and (2) is a non-standard use of a cash budget.  (E.g. you'd
have to budget negative values, something a cash budget doesn't
usually have.)

In any situation where your records actually *have* to record what you
spend money on, (1) is mandatory.(*)  What I wonder is whether allowing
(2) is worth the (possible) confusion.

(*) Actually, a real accountant would probably do it a bit
differently; count the whole expense up front, and pay down the
liability account, but the point is, you *have* to use an expense
account, and all liability accounts have to start at zero.  You can't
just *create* liability by setting an opening balance on a liability
account.

-chris