Advanced Budget Report Question

Benjamin Johnsen ben.johnsen at gmail.com
Tue Jan 19 08:37:44 EST 2010


Andre,

It is good to hear that you are using the report.  After I submitted I
hadn't heard anything more and figured it was a dead end.

I might have a few updates but they would be graphical and maybe a few
calculations bugs that show up around the end of the year.  I will have to
see what version I submitted to know what issues I might have fixed.

I have talked to a few people about the Asset and Liability issue in
relation to a budget.  Again these people aren't CPAs but they run small
businesses and they have some pretty good insight into how the books are
done.  They seemed to say that updating Assets and Liabilities was a Year
End activity.  Their recommendation was to create an Expense account and at
the Year End when you close it out it would get moved to the Liability there
by reducing the Liability.

I don't know if you do you a Year End close out but as I understand it at
the end of each year you should close out all of your Expense and Income
accounts.  Basically get them back to 0.  The way I understand to do this is
by creating an Asset account named for the year. Something like "2008 Year
End".  I then transfer all of my Expense and all of my Income to that Asset
account.

So if I take a mortgage as an example.  I am going to do a simple example
and ignore closing costs and taxes and any other things that could go along
with a mortgage.  This just deals with the mortgage payments.  I have 4
accounts.  1 Liability (Mortgage Principle), 1 Asset (Value of the House), 2
Expense (1 Interest Payment, 1 Principle Payment).

I then have a transaction from the Liability to the Asset account for
$80,000 this give that Asset its value if a down payment was made then
another transfer would be made from another Asset account to the House Asset
account.  Then as the year goes on payments on the mortgage are made every
month.  Charge those payment to the Interest and Principle Expense accounts
accordingly.   At the end of the end of the year there is $10,000 in the
Interest Expense account and $5,000 in the Principle Expense account.  The
Year End close out process for the Interest Expense account a transaction
would be created that would transfer $10,000 from the Interest Expense
account to the newly created "2008 Year End" Asset account.  To close out
the Principle Expense account a transaction for $5,000 would be created to
transfer $5,000 from the Principle Expense account to the Liability account
for the loan there by paying down the loan.

The advantage to doing things this way is that through the year all of your
Liability payments are tracked as an Expense and can be included in the
budget report.  The down side is that if you want to look back at a previous
year's budget the numbers will be messed up because each Expense and Income
account will have been closed out.  I haven't found the downside to be that
big of a deal because when I close out an account I have a total amount that
I spent for that year which is normally all I ever need.  From the total
number I can then plan for the budget for the next year or see how my
spending has gone up or down year of year.

So in short I agree with Forest and would like to keep Liabilities out of
the report.  I will see what updates I have made since I last submitted to
GnuCash and see about submitting a new version.

Thanks,
Ben

On Fri, Jan 15, 2010 at 8:56 AM, apowell656 at gmail.com
<apowell656 at gmail.com>wrote:

> Forest,
> I agree with your response and I am not interested in changing any rules of
> finance. A simpler solution from how the current report is built would be to
> add another section for assets and liabilities, based on the BBS layout and
> formula. A user could either project for either or just one (me personally
> would just like to see liabilities I am paying for).
>
> This would address the fact that currently there is no way to project a
> balanced budget without exporting the info to a spreadsheet or manually
> calculating the information. Where in my opinion both of these options are
> more time consuming whether at setup(spreadsheet) or at the time of
> (calculator) .
>
> Needless to say my wishlist would be one of the following; if there is a
> way to actually pay on a liability and to get it to report as an expense
> that would be all the better for this report, or GnuCash to actually show
> the totals in the built in report so a user could get the info from one
> screen.
>
> Best regards,
> Andre Powell
> (This is the first long email I have written on my Eris and not so bad of
> an experience)
>
> ----- Reply message -----
> From: "Forest Bond" <forest at alittletooquiet.net>
> Date: Thu, Jan 14, 2010 10:36 PM
> Subject: Advanced Budget Report Question
> To: "Andre Powell" <apowell656 at gmail.com>
> Cc: <ben.johnsen at gmail.com>, <gnucash-devel at gnucash.org>, <
> gnucash-user at gnucash.org>
>
>
>
> Hi,
>
> On Thu, Jan 14, 2010 at 07:33:08PM -0500, Andre Powell wrote:
> > I think that it would be fair to say that if I would decrease an asset in
> my
> > budget it would be an expense (towards something) and if I increased it
> would
> > go towards income. Regarding a liability much the same if I decreased it
> would
> > be an expense, and increased it would be "income", although obviously
> debt.
> > Although, I am no CPA I do not have an "official" answer, but it makes
> sense
> > to me. In a more simplified way, and the way I think that most people
> would do
> > a budget count the payments to a liability as an addition to your
> expenses and
> > the math will roll on from there.
> >
> > With all of that said, what are the odds of you adding Liabilities to the
> > report with them impacting expenses. :-)
>
> I would very much prefer assets and liabilities to not be handled this way.
>
> It is not consistent with current handling in the Budget Income Statement
> (BIS)
> and Budget Balance Sheet (BBS) reports.  BIS only looks at income and
> expense
> accounts.  BBS assumes that positive values entered for assets are savings
> and
> therefore increase the value of those assets and that positive values
> entered
> for liabilities represent liability repayments and therefore decrease the
> liability.
>
> If this interpretation needs to change, so be it, but I would really like
> to see
> some discussion and consensus before the behavior gets less consistent than
> it
> is now.
>
> In any case, I think asset/liability values being somehow interpreted as
> income/expenses is wrong.
>
> Thanks,
> Forest
> --
> Forest Bond
> http://www.alittletooquiet.net
> http://www.pytagsfs.org
>
>
>


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