[GNC] envelope method, equity sub-accounts, cash vs. hybrid vs. accrual accounting

Thu Aug 13 20:09:29 EDT 2020

I use envelope budgeting, with one actual bank account, represented in Gnucash by multiple subaccounts. The account summary shows me the total amount in the actual account, which I can check against the balance of that account. I have scheduled transactions in Gc that deduct from my usual cash account (which is different again) into the subaccounts. At the bank, I have scheduled transfers that make those deductions from my cash account to my (single) budget account. When I know a bill is due, I schedule a payment at the bank from my single budget account, and likewise schedule a transaction in Gc.

The difficulties come in “reconciling” the budget accounts with the bank budget account. My accounts are set up so that the parent budget account shows the total of the subaccounts, but does not show the transactions. I may be able to make it do this, at least while “reconciling,” but I haven’t looked into it that far. So I hav to work from multiple Gc accounts against the single bank statement, which is a pain. However, as these are regular payments, that’s not so bad.

Incidentally, I use the scare quotes because I do not use Gc’s reconciliation mechanism. I started to look at it once, and it seemed incompatible with the way I was doing things. Now I reconcile manually against the statements by setting the cleared marker on the individual Gc transactions and then working out which ones I have forgotten to enter. I try to do entry regularly – ideally every evening – from the receipts I have collected during the day, including online receipts.

Obviously, only budgeted payments come out of the budget account. If I have to raid the budget, I’m living beyond my means. Confer with Mr Micawber. The whole point about having such a budget is that you don’t raid it. If you do, you’re stuffed, financially speaking. 

With those caveats, envelope budgeting works for me.

> On 14 Aug 2020, at 5:26 am, Don Ireland <gnuCash at donireland.com> wrote:
> 
> "I don't see how the envelope method of budgeting is somehow not compatible with double-entry. One split will be the expenditure, the other will be the appropriate envelope. Filling the envelopes involves splits between cash-on-hand and the various envelopes. Double entry is certainly not difficult or incompatible with the method."
> 
> When you "move money" to deposit into those envelopes, it will mess up the transaction list on the checking/savings account that will continue to "hold" those funds until you actually spend the money.  So it breaks in that sense.
> 
> On August 13, 2020 2:07:48 PM CDT, Adrien Monteleone <adrien.monteleone at lusfiber.net> wrote:
>> On 8/12/20 4:34 PM, doncram wrote:
>>> The documentation (GnuCash Tutorial and Concept Guide's
>>> chapter 14 on Budgets and its section on budget reports within
>> chapter 10
>>> Reports)  doesn't go very far yet.
>> 
>> This is certainly true, as can be found many times on this list, 
>> "Contributions welcome."
>> 
>>> It doesn't mention any report showing
>>> Budget vs. Actual amounts for a given period, but I assume something
>> like
>>> that must exist.
>> 
>> Did you run a report and investigate the options? Simply doing so would
>> 
>> have saved you typing a paragraph.
>> 
>> The Budget report has the Actual and Difference columns as an option.
>> 
>> Percentages would be nice, but you'll have to export to a spreadsheet 
>> for now.
>> 
>> 
>>> About implementing some "envelope method" approach, I think that
>> would be
>>> very radical, and that it would not be reasonable to devote
>> programming
>>> effort to it before it was proven to be useful in real life. I
>> haven't see
>>> it demonstrated in a spreadsheet-based example, even.  Are there
>> such?
>> 
>> Don't be lazy. A simple web search will reveal plenty of example sheets
>> 
>> you can download.
>> 
>> There are also apps which follow this. (you already know of YNAB) I've 
>> played with MoneyWell (Mac only) and while I like how it works, I kept 
>> coming back to GnuCash. Since both can integrate through import-export,
>> 
>> I may investigate using MoneyWell for day-to-day expenditures and 
>> budgeting, then exporting into GnuCash for my full accounting. That 
>> would solve my data-entry 'virtual account dance' that is required to 
>> use this method with GnuCash alone.
>> 
>> 
>>> but it sounds like it is meant as a thing for a firm which does not
>> have
>>> double-entry bookkeeping.  
>> 
>> I don't see how the envelope method of budgeting is somehow not 
>> compatible with double-entry. One split will be the expenditure, the 
>> other will be the appropriate envelope. Filling the envelopes involves 
>> splits between cash-on-hand and the various envelopes. Double entry is 
>> certainly not difficult or incompatible with the method.
>> 
>> 
>> If it is a thing, I suspect it is only a thing
>>> for entities like households that wouldn't be using GnuCash.
>> 
>> Again, I don't see this limitation at all. Why wouldn't a household use
>> 
>> GnuCash and want to use Envelope Budgeting? Indeed, I suspect anyone
>> who 
>> wants to see it added to GnuCash is indeed doing personal accounting.
>> 
>> 
>> With no use of credit/debit cards at all.
>> 
>> The aforementioned MoneyWell was designed specifically for this use 
>> case. While it can be used for someone who deals in cash only, it
>> really 
>> is designed for people who rarely use physical cash. (might be why I
>> had 
>> a difficult time sticking with it)
>> 
>> 
>>> snip < This
>>> is, like, motivational, not practical;
>> 
>> So, so, so many people following that advice a la Mr. Ramsey might 
>> respectfully disagree. This type of comment is getting into territory
>> of 
>> discounting others and their use cases again, simply because they don't
>> 
>> mimic your own.
>> 
>> 
>> I guess it could work for, like,
>>> the classic example of a rich woman having a big allowance from her
>>> husband, where her spending is really discretionary, when the husband
>> gets
>>> mad and limits her to only spending from an allowance for the month
>> given
>>> in cash, with resolve that he won't give her more.
>> 
>> That sentiment is not only short sighted of how others than yourself 
>> approach money and handle their finances, but also quite insulting. 
>> There are many families that operate with both spouses on-board with
>> the 
>> envelope (and even cash-only) method.
>> 
>> 
>> Any nonprofit or small
>>> business is not like that, cannot operate that way even as an
>> exercise for
>>> any period of time, but cause it just can't stop spending in a
>> category
>>> when spending has to be done.
>> 
>> I could be mistaken, but I was taught managerial accounting/budgeting
>> to 
>> aggregate expenses into broad categories for analysis. (the actual 
>> accounting is of course done with normal detailed accounts) That is 
>> essentially what the Envelope Method is for households. Rather than 
>> getting lost in the minutiae of each little account, it broadly groups 
>> categories of spending purposes for a broader and simpler overview
>> where 
>> more impactful decisions can be made.
>> 
>> Looking at dirty details are useful to find out why a particular 
>> category might be out of whack that you are either just finding out is
>> a 
>> problem, or because you're having a hard time keeping it in check. (and
>> 
>> may expose the need to adjust your habits/decisions or budget) But that
>> 
>> is an investigatory tool, while a bigger picture overview is easier to 
>> make decisions on and operate on a day-to-day basis to stick to the 
>> budget rather than a re-active line-item approach after the money is 
>> already out of the door.
>> 
>> And most certainly a small business can operate that way. (and 
>> non-profits) If the money isn't physically there and the business 
>> doesn't have access to debt, or chooses not to use it, then no matter 
>> how much spending 'has to be done' the manager/owner doesn't/can't do 
>> it. Yes, that might come with a negative impact in some form, but that 
>> doesn't mean the money gets spent no-matter-what. (In a worst case,
>> this 
>> entity would be insolvent, but that non-spending decision may be made
>> to 
>> avoid that condition.)
>> 
>> I've been involved with several small businesses and a couple of 
>> non-profits. Every single one didn't just 'spend' because it 'had to be
>> 
>> done'. (where that argument might be made, like 'utilities', such 
>> spending *could* happen, because other parts of the budget were 
>> controlled well and subjected to *can't happen* if doing so would 
>> threaten the ability to meet 'mandatory' expenses)
>> 
>> Regards,
>> Adrien
>> 
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> 
> Don Ireland
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