Budgeting - Let's decide what we want!

[Andrew L. Gould]

On Saturday 30 August 2003 10:05 pm, Dale Alspach wrote:
> >You can't (shouldn't) budget asset accounts.  Only income and
> >expense accounts.
>
> There are circumstances in which budgeting asset accounts makes
> sense. For eample suppose you hold a note for $50,000. You expect
> to receive payments of principal of $15,000 this year. This is
> not income but is an asset conversion. It won't show up in a pure
> income expense budget yet you have $15,000 that can be used for
> expenses or for capital expenditures, etc.
>
> Dale Alspach

Based on recent emails, I think we're blurring the lines between similar 
activities.  It might add some clarity to these discussions if we separate 
the following financial functions:

1.  Cash Flow Management - Management must project cash inflows and outflows 
to be sure that adequate cash is available as needed.  This should include 
analyses of expenses, short-term payables (including current portions of 
long-term debt), cash accounts, payroll, inventory turnover and receivables.  
In tough times, these analyses cannot wait for month-end reports; but should 
be available from weekly, or even daily balances.

2.  Budget - Budgets are strategic planning tools that are usually documented 
at the monthly detail level.  Budget variance analyses usually occur monthly 
or quarterly.  The object is to determine if changes in operations or 
business strategy are warranted.

Many entities only analyze the P&L side of the house.  Entities that must 
comply with loan convenants must maintain certain levels of liquidity (Acid 
Ratio or Days Cash On Hand, for example).  These concerns should be budgeted 
and analyzed, as they will can impact the timing of strategic projects or 
purchases.  This is where budgets and cash management overlap.

Would it be easier to address these activities with separate modules?

Andrew Gould