Creating a budget

Mike or Penny Novack stepbystepfarm at mtdata.com
Wed May 13 07:28:52 EDT 2009


David Stibbe wrote:

>Hi,
>
>I'm stelly pretty inexperienced in gnu-cash: I've been using it for
>about 2 months now. Although everything seems to work for me, I just
>can't seem to get the following done:
>
>I have one savings account on which I set money aside on a monthly
>basis. This money is meant for later purchases. E.g. a new computer of
>about 1000 euros, for which I set aside 150 a month and a new tv of
>about 600 euros, for which I set aside 50 a month: I want to be able
>to track how much there has been saved for the computer and how much
>for the tv. (There are accounting terms for this, I know, but I have
>no idea which ones.)  I did follow some instructions in the manual
>about budgets but that didn't quite do what I wanted it to do. Does
>anyoine have a good suggestion on how to accomplish this?
>
>
>kind regards,
>David
>  
>
This seems to be coming up a lot an creating confusion. It's not really 
a GnuCash question but an accounting question, confusion between what a 
"budget" is and "reserve accounts" in the actual books.

A "budget" is a PLAN, a projection over time of what you expect. A 
typical accounting system like GnuCash has provision for you to be able 
to have a budget and report on it. But the actual transactions over time 
might not agree with the budget, might be over or under. Equally typical 
in accounting/bookkeeping is wanting to indicate and track funds that 
have been set aside for some purpose, often called "reserve funds". You 
gave an example, the reserve you are building for the purchase of a TV.

In a very large financial entity, reserve funds might even have their 
own bank accounts but that isn't likely at the scale of entity using 
GnuCash (or any other "package" -- an entity that large might have a 
custom system written by its own IT department). So how do we do this 
with GnuCash? It's not hard. Under our bank account we create child 
accounts, one for each of the reserve funds. In my case I find it useful 
to also have a child for "unreserved funds" and treat that as how much 
available in the bank.

In other words, now the total for the parent "bank account" will match 
what the bank says that you have in the account (what you reconcile to) 
but each of the child accounts shows what you have in that reserve or 
unreserved. Now comes the accounting for when you use reserve funds for 
their intended purpose. In my case I want to make reconciling checks 
easy so actually done against the "regular" bank account (unreserved) 
and then quarterly or even just annually would enter a transfer 
transaction (reserve to regular) to indicate that reserve finds were 
used for their intended purpose. But you might want to do that as you go 
along. (our situation is different -- I'm doing organizational 
accounting for a 501c3 and the reserve accounts are for donations 
restricted as to purpose. So in my case a periodic adjustment makes more 
sense -- simply take the total of expenses that qualify according to the 
restriction on the fund and transfer that much instead of individual 
adjustments for each item. For example, imagine for a moment that you 
were an organization whose purpose was to aid schools and you had funds 
reserved for computers, books, AV materials, etc. Instead of 
transferring for each item you would wait till before each quarterly 
report and then transfer the total for computers, the total for books, 
etc. On the other hand, you are more likely doing this for single large 
items and so might as well adjust as you go along.

Michael


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