Budget questions. (wordy)

[Tim Wunder]

On Tuesday 08 November 2005 9:37 pm, someone claiming to be Chris Shoemaker 
wrote:
> 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.
>

"cash budget" vs "expense budget"? You keep using the term "cash budget" as if 
I should know what you're talking about, but, well, I dont :(

> 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.
>

OK, in my case, the record of the expense was created when the liability was 
incurred. Say I used a CC to buy a fridge using a 0% interest CC card. Now I 
want to budget paying down the liability. That would seem to be choice (2), 
if I'm following along. The same can be applied to a loan. I create a loan 
liability account to pay for a new car. The creation of the balance on the 
liability account is causes a balancing entry to the asset account for the 
new car.

> 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.)
>

OK, I still need a rudimentary tutorial on what other kind of budget, rather 
than a cash budget, could be utilized to track, for lack of a better way to 
put it, where the user plans for the money to go month to month. Is the 
budget intended to ship (if all goes well) in G2 a cash budget?

> 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.
>

But (2) does *not* preclude the existence of (1). By doing an Asset->Liability 
transfer (2) I can still find out what the expense was (or asset purchase, in 
the case of buying a fridge), even though at the time of the (2) transaction, 
record of the expense is not made. The record of the expense (1) was made 
when the liability was incurred.

> (*) 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.
>

Hmmm... don't wanna *be* a real accountant, I just wanna plan where my money 
is going to go over the next 12 months ;)

Thanks, 
Tim

-- 
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