Accounting Question

[Phil Frost]

On Tue, Feb 01, 2011 at 06:15:08PM -0700, Mark Phillips wrote:
> I run a US not for profit 501c3 on a cash basis. We are a club softball
> organization with 2 teams. I reserve practice fields for the teams with the
> local city government for about 4 months in advance. I pay nothing when the
> contract is signed, because it is easier for the city to make changes to our
> contract as time progresses (eg rain outs, we cancel a practice, add a
> practice, etc.) and then bill me the exact amount used at the end of the
> contract. I was wondering how to account for this.
> 
> 1. I could just wait until the end of the contract and expense the field
> rental out of the checking account. The problem with this is I want to make
> sure I keep track of this liability for the corporation, and have enough to
> pay the fee when the time comes.
> 
> How would i set up the accounts to (1) show the fact I have a future
> obligation on my checking account, and (2) when I pay it, I have incurred an
> expense?

I agreed to a contract with my ISP, and I pay them $50 each month. Is
this a liability?

I make payments to my mortgage from my checking account. Do my books
show anywhere that the balance of that liability will be paid from my
checking account?

In each case the answer is no. My ISP's contract doesn't obligate me to
pay; using their services does. I could change my mind on how I pay my
mortgage at any time; all that's recorded in my books is that I must pay
it.

Accounting records are (ideally) immutable, and record only what has
happened in the past. The discipline of budgeting is concerned with
planning for the future. If you want to record that probably you will
spend some amount on practices, and probably it will come from your
checking account, a budget is the place to do that.