Council Tax

[Benjamin Carlyle]

On Tue, 2005-03-08 at 19:15 +0000, Tom Haskins-Vaughan wrote:
> I've just got my Council Tax bill for the year 2005/2006. I will be 
> paying it by direct debit over 10 months. My question is this. Because I 
> know now how much I am liable for for the whole of the year do I create 
> a liability account called council tax and charge it the total amount 
> with the Expenses:Tax:Council tax  expense account? This way I'll always 
> know how much I have left to pay i.e. the balance of the liability account.
> 
> Or, should I just charge it to my current account each month?

Thinking about bills in time is fairly simple. Just look at your
accounting period, and match an amount from that bill to the period.
This is called the matching principle. You should be able to match a
particular period to the income and expenses you had in that period.
They shouldn't shift from one period to another just because payments
are requested at different times. The period of the bill and of the
payments have to work around your accounting cycle. If they don't match
closely you need to tweak things by holding money in a "prepaid
expenses" asset account for bills you've paid before incurring the
expense or an "accrued liabilities" liability account for expenses
you've incurred but haven't been asked to pay yet.

Let's take an example. Suppose you live in Australia like me and get
paid monthly (and so do my accounting on a monthly basis), but get a
quarterly rates bill. If the rates bill covers January, February and
March then a $300 bill should come out as three even expenses of $100
each. The expense payments match my monthly accounting period. If I have
a direct debit that goes out once a month it's simple:

1) January payment from bank to council of $100
2) February payment from bank to council of $100
3) March payment from bank to council of $100

If I have to pay the lot ahead of time, it's a touch more complicated. I
have to stash some of the money I handed over to the council in an asset
account until they've actually earned the money I've paid them:
1) January transfer from bank to prepaid expenses of $300
2) January payment from prepaid expenses to council of $100
3) February payment from prepaid expenses to council of $100
4) March payment from prepaid expenses to council of $100

If I am allowed to pay at the end of the three months it doesn't change
the fact that my living where I live is costing me the same amount. I
need record the expenses into a liability account I later pay down. It
looks like this:
1) January payment from accrued liabilities to council of $100
2) February payment from accrued liabilities to council of $100
3) March payment from accrued liabilities to council of $100
4) January transfer from bank to accrued liabilities of $300

If you're using payable accounts you'd have an extra step between bank
and the other accounts.

So, the short answer for you is that if you're paying by the month and
keeping your accounts on a monthly cycle just treat it as an expense
when the payment goes out. Since you're incurring expenses at a constant
rate by living where you're living you should see that constant rate
reflected in your accounts.

-- 
Benjamin Carlyle <benjamincarlyle at optusnet.com.au>