Enquiry about budgets

Dennis Muhlestein djmuhlestein at gmail.com
Sat Jan 3 00:15:36 EST 2009


On Jan 2, 2009, at 8:26 PM, John R. Carter, Sr. wrote:

> Dennis, in your write-up comments in your website where you talk  
> about using GnuCash for budgeting, you asked,  "should budget  
> accounts count as a liability on your balance sheet?"  The answer is  
> yes. Any money set aside for a future use is a current liability and  
> must be subtracted from assets in the balance sheet. The equation  
> is: Assets - Liabilities = Equity. So to know how much Equity you  
> have (not to be confused with liquidity), you must follow that  
> equation.
>
> Even though the money is sitting in a savings account or some  
> investment pool, it is technically not available for spending on  
> anything other than the allocated budget. Naturally, you can muck  
> around with your budget all you want to. Big Business does this all  
> the time with your retirement funds that they contribute to or  
> invest your money in. That's why Big Business comes up short for  
> pensions when they go bankrupt. If they didn't muck with the pension  
> budget money, it would still be there when you need it even if they  
> went out of business. Oh! I guess I'm really talking about the  
> government and the Social Security funds.
>

I realized the correctness of that more and more after I wrote the  
article.  I think now my only issue is how to correctly account for  
the budget asset.  Right now, my budget doesn't affect my balance  
sheet because I created a virtual asset called "budgeted cash" that  
equals the amount of the money I budget.  Really, I'd rather have that  
virtual asset simply be represented by my bank account.

Example of how I currently have it:
checking
   debit $100
income
   credit $100
budgeted cash
   debit $100
budget:
   various budgets:
   credit total to $100

So on the balance sheet I then on the balance sheet I actually have  
$200 of assets and $100 of liabilities (the budget being the $100  
liability).  The problem is that it really should show a balance of  
zero, not $100.  If there was a way to make the budgeted cash account  
not show in the totals for the balance sheet that would probably be  
better I think.  I know you can choose not to include an account in  
the reports by selecting which accounts are chosen but it would be  
nice just to tell GnuCash to ignore the account total.  Some people  
use sub-accounts under their checking account (or whatever account)  
for the budget accounts instead of a virtual budgeted cash account but  
I spend money from different sources (like a credit card as Fiona  
said), and that doesn't seem to fit very will.

Overall though, I'm pretty happy entering transaction amounts twice  
when we make a purchase.  One part shows the actual cash source to  
expense account and the 2nd part shows a debit to the budget category  
and a credit to the virtual budgeted cash account.  The nice thing is  
you can spend money from any account and reflect that as part of any  
budget you wish.  It especially works well when you want to use a non- 
standard budget for a purchase.  You can do things like make a  
purchase that is an asset and take the money from your savings budget.

-Dennis


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