Tracking Money in Savings Account

[Mike or Penny Novack]

>Case 2: you must pay the income tax in 6 month time.
>Instead of writing a check right away, you decide to
>get some interest for the money instead and keep it
>on your savings account. However, you know you have
>to pay $tax in 6 months time, so you transfer the money to
>your "income tax" envelope. This way, while your bank statement
>still shows the full amount, your GC bank account only shows the
>amount of money you really have.
>
>(Another way to handle case 2 - and probably more correct in
> pure bookkeeping terms - would be to make a transfer from
> Expenses:Income Tax to Liabilities:Income Tax and in 6 months
> time, write a check for the tax office and book it as a transfer from
> your normal Savings account to Liabilites:Income Tax).
>
I think that's the issue here. That people don't understand why the 
normal bookkeeping method is the second.

In the interim you have the cash (in your checking account) and a 
liability for taxes to be paid by some future date. Will you pay them by 
check (the reason why you seem to think "less money in the checking 
account than the bank thinks" or some other way. For example, suppose 
you have "pre tax money available" but can't touch any of that without 
paying a penalty tax till you reach a certain age. So maybe you don't 
(in effect) take the money directly from your checking account but by a 
short term loan (trading liability for liability) that you pay off when 
that critical date has passed.

Bookkeeping is about ACTUAL transactions, not transactions that might or 
might not occur. For projected transactions (planning) we use a "budget".

Michael