Budget questions. (wordy)

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Budget questions. (wordy)

Tim Wunder (Lists)
Hi,
I recently developed a paper personal expense budget. It involved reviewing
past expenses utilizing gnucash 1.8.11 reports, some cumulative
categorization, and a monthly estimate of expenditures, including those
expenditures that do not occur monthly.
I figured this was as good a time as any to give the new budgeting code in
G2/trunk a little test drive.
I'm using SVN sources from 11/7/2005
$ svn info|grep Rev
Revision: 11877
Last Changed Rev: 11877

So... to start...
The first thing I eventually found was under the File menu: File-Open-Open
Budget. I kinda expected that access to the budget would be under Actions
(cuz that's where the SX stuff is), or Tools (cuz budgeting is kinda like a
tool), but I eventually found it under File.

So I opened a budget. The screen displays a duplicate of my account tree, that
was good to see. And there were three very obvious buttons:
Budget Options -- which I presumed to be self explanatory.
Estimate Budget -- which I thought I understood to be a tool for, well,
estimating a budget.
Delete Budget -- again, very obvious purpose for that button.

I decided to try each of the buttons out to see what they did.
Budget Options:
This button presents me with a window with two tabs, "Budget" and "Budget
View".

Under the "Budget", I'm presented with settings where I can Name the budget,
and give it a description. OK, I guess that's useful. I assume you'll be able
to create and maintain several budgets, and it'd be good to name them, and
describe them.

It also presents what I guess are the options for Budget Periods. The dialog
here is a little unlear, but intuitive enough, I suppose. Might wanna throw
in a separator between the budget name and description section at the top,
and the Period section of the Budget Options or lay it out in the same way as
the GnuCash Preferences dialog -- tabs on the left, sections separated by
titles in bold. But it was easy enough to figure out.

The Periods default to Every 1 month(s), beginning today. And it's obvious
enough to figure out how to change that. So I change mine to be the beginning
of the month rather than today's date.

There's a check box for "same week & day" but I have no idea what it's for.
And finally a Number of periods setting that defaults to 12. Good, an annual
budget. I think I'm OK so far.

Under the "Budget View" tab, I'm given a list of Account Types to Show. Nice.
I like that. I proceed to Ctrl-Click to select multiple Account Types because
I'm looking to just budget Expenses (and Liabilities). So I proceed to select
Liability and Expense account types, and click OK. I'm then presented with a
subset of my account tree, listing only the Expense and Liability accounts.

This is looking pretty good so far. On to the next button, the Estimate
Button. And this is where I'm sure I don't understand what's supposed to
happen. The tooltip says the button is used to "Estimate a value for the
selected cells." OK, I guess that makes sense. I decided to select an account
I wanted to budget and give the button a try.

First on the list was a Liabilities:Credit Cards:Citi Mastercard, I
highlighted it, and selected the Estimate Budget button. It proceeded to fill
in an amount of -200.00 for the month of November 2005. OK. that makes sense,
I guess, $200.00 is what I paid on the Citi Mastercard this month. So I guess
that's where it's getting the number. I then selected December 2005 and
clicked the button again. Nothing happened. I was expecting that it'd
estimate the value to be the same as the previous month, or maybe the value
from the same month a year ago (or 12 periods ago, since I did configure the
options for monthly budget period and 12 periods to budget).

Well, I figured I just didn't understand what the Estimate button was suposed
to do, so I carried on with trying to enter a budget.
Hmmm... Now, why did it only list my Citi Mastercard? I have other Credit
Cards... OK, I see, There's a Credit Card account type that my other Credit
Cards are using. No problem, I went to Budget Options, and added Credit Cards
to the list of accounts to view, and my other credit cards displayed. I
selected another for budgeting, my Bank of America Visa card. I highlighted
it, and clicked the Estimate button. Nothing happened. So now I'm starting to
think that maybe my expectations of what the Estimate Budget button is going
to do and what it is, in fact, designed to do are different things.

So this is where I stop testing to seek clarification. How's this Estimate
thing supposed to work?

Heck, a quick overview of how the budgeting stuff is nteded to work wouldn't
hurt either. It'd help me in testing it out in a semi real life scenario.

Regards,
Tim


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Re: Budget questions. (wordy)

Chris Shoemaker
[Tim, this is just a quick reply.]

On Mon, Nov 07, 2005 at 11:38:55PM -0500, Tim Wunder wrote:

> Hi,
> I recently developed a paper personal expense budget. It involved reviewing
> past expenses utilizing gnucash 1.8.11 reports, some cumulative
> categorization, and a monthly estimate of expenditures, including those
> expenditures that do not occur monthly.
> I figured this was as good a time as any to give the new budgeting code in
> G2/trunk a little test drive.
> I'm using SVN sources from 11/7/2005
> $ svn info|grep Rev
> Revision: 11877
> Last Changed Rev: 11877
>
> So... to start...
> The first thing I eventually found was under the File menu: File-Open-Open
> Budget. I kinda expected that access to the budget would be under Actions
> (cuz that's where the SX stuff is), or Tools (cuz budgeting is kinda like a
> tool), but I eventually found it under File.
>
> So I opened a budget. The screen displays a duplicate of my account tree, that
> was good to see. And there were three very obvious buttons:
> Budget Options -- which I presumed to be self explanatory.
> Estimate Budget -- which I thought I understood to be a tool for, well,
> estimating a budget.
> Delete Budget -- again, very obvious purpose for that button.
>
> I decided to try each of the buttons out to see what they did.
> Budget Options:
> This button presents me with a window with two tabs, "Budget" and "Budget
> View".
>
> Under the "Budget", I'm presented with settings where I can Name the budget,
> and give it a description. OK, I guess that's useful. I assume you'll be able
> to create and maintain several budgets, and it'd be good to name them, and
> describe them.
>
> It also presents what I guess are the options for Budget Periods. The dialog
> here is a little unlear, but intuitive enough, I suppose. Might wanna throw
> in a separator between the budget name and description section at the top,
> and the Period section of the Budget Options or lay it out in the same way as
> the GnuCash Preferences dialog -- tabs on the left, sections separated by
> titles in bold. But it was easy enough to figure out.
>
> The Periods default to Every 1 month(s), beginning today. And it's obvious
> enough to figure out how to change that. So I change mine to be the beginning
> of the month rather than today's date.
>
> There's a check box for "same week & day" but I have no idea what it's for.
> And finally a Number of periods setting that defaults to 12. Good, an annual
> budget. I think I'm OK so far.
>
> Under the "Budget View" tab, I'm given a list of Account Types to Show. Nice.
> I like that. I proceed to Ctrl-Click to select multiple Account Types because
> I'm looking to just budget Expenses (and Liabilities). So I proceed to select
> Liability and Expense account types, and click OK. I'm then presented with a
> subset of my account tree, listing only the Expense and Liability accounts.
>
> This is looking pretty good so far. On to the next button, the Estimate
> Button. And this is where I'm sure I don't understand what's supposed to
> happen. The tooltip says the button is used to "Estimate a value for the
> selected cells." OK, I guess that makes sense. I decided to select an account
> I wanted to budget and give the button a try.
>
> First on the list was a Liabilities:Credit Cards:Citi Mastercard, I
> highlighted it, and selected the Estimate Budget button. It proceeded to fill
> in an amount of -200.00 for the month of November 2005. OK. that makes sense,
> I guess, $200.00 is what I paid on the Citi Mastercard this month. So I guess
> that's where it's getting the number. I then selected December 2005 and
> clicked the button again. Nothing happened. I was expecting that it'd
> estimate the value to be the same as the previous month, or maybe the value
> from the same month a year ago (or 12 periods ago, since I did configure the
> options for monthly budget period and 12 periods to budget).
>
> Well, I figured I just didn't understand what the Estimate button was suposed
> to do, so I carried on with trying to enter a budget.
> Hmmm... Now, why did it only list my Citi Mastercard? I have other Credit
> Cards... OK, I see, There's a Credit Card account type that my other Credit
> Cards are using. No problem, I went to Budget Options, and added Credit Cards
> to the list of accounts to view, and my other credit cards displayed. I
> selected another for budgeting, my Bank of America Visa card. I highlighted
> it, and clicked the Estimate button. Nothing happened. So now I'm starting to
> think that maybe my expectations of what the Estimate Budget button is going
> to do and what it is, in fact, designed to do are different things.
>
> So this is where I stop testing to seek clarification. How's this Estimate
> thing supposed to work?
>
> Heck, a quick overview of how the budgeting stuff is nteded to work wouldn't
> hurt either. It'd help me in testing it out in a semi real life scenario.

Yes, this is high on my priority list.  I'll see if I can whip
something up by the end of the week, but to get you going again...
'Estimate Budget' just fills in the *actuals* for that account and
period(s).  It's not smart enough to go back to any previous time-period.

Try this.  Temporarily set the budget period to begin one year
ago, then hit estimate, then set it back to this year.  That's
equivalent to saying "let's use the last year's actuals as the
starting point for this coming year's budget."

I know it needs tooltips and "Help".  Thanks for your feedback; it
will guide what goes in those.

-chris

>
> Regards,
> Tim
>
>
> --
> Fedora Core release 4 (Stentz), Linux 2.6.13-1.1532_FC4
> KDE: 3.4.3-1.0.fc4.kde, xorg-x11-6.8.2-37.FC4.49.2
>  22:30:03 up 6 days,  2:40,  3 users,  load average: 0.18, 0.81, 1.34
> MP3/OGG archive Total playlength : 7 days, 10 hours, 31 mins 30 seconds
> "It's what you learn after you know it all that counts" John Wooden



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Re: Budget questions. (wordy)

Chris Shoemaker
In reply to this post by Tim Wunder (Lists)
On Mon, Nov 07, 2005 at 11:38:55PM -0500, Tim Wunder wrote:
> Under the "Budget View" tab, I'm given a list of Account Types to Show. Nice.
> I like that. I proceed to Ctrl-Click to select multiple Account Types because
> I'm looking to just budget Expenses (and Liabilities). So I proceed to select
> Liability and Expense account types, and click OK. I'm then presented with a
> subset of my account tree, listing only the Expense and Liability accounts.

Here's something else to think about: I really didn't count on people
wanting to budget for Liability accounts.  As a matter of fact, I
strongly considered not even having an "Account Types" option at all,
and just forcing it to Income and Expense.  I only left it as a "give
'em rope" option.

I suppose it *could* work as long as the user understands how
budgeting for Liabilities differs from budgeting for expenses.

E.g. If I want to budget for paying my loan down with expenses I would
say, "I plan to spend $200/month paying my brother back for that
loan." and would budget $200 in Jan, $200 in Feb, $200 in Mar, etc.

I guess I could do that with the liability account, too, as long as I
realize that the budget values are the *differences* between the
liability value from month to month and not the actual liability
values.  I.e. $-200 in Jan , $-200, in Feb, etc. but NOT $10000 in
Jan, $9800 in Feb, $9600 in Mar, ... etc.

Note: AFAIK, this type of liability budgeting is NOT standard
accounting practice.  What I described with income and expense
accounts is a standard "cash" budget.  Liability (and asset) planning
is usually done with a "financial" budget (basically a projected
balance sheet, with account values, not differences) or with a
"capital" budget, which is more free-form scenario-investigation.

The current gnucash budgeting code is only designed for cash
budgeting, so if you budget for liability accounts, you're really just
looking at incomes/expenses by their related differentials in the
liability accounts.

If it behaves intuitively for liabilities, I guess we can allow it,
but if it's confusing I'm inclined to restrict budgeting to
income/expense, because I think that would be simpler and more
standard.

-chris
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Re: Budget questions. (wordy)

Tim Wunder (Lists)
On Tuesday 08 November 2005 4:29 pm, someone claiming to be Chris Shoemaker
wrote:

> On Mon, Nov 07, 2005 at 11:38:55PM -0500, Tim Wunder wrote:
> > Under the "Budget View" tab, I'm given a list of Account Types to Show.
> > Nice. I like that. I proceed to Ctrl-Click to select multiple Account
> > Types because I'm looking to just budget Expenses (and Liabilities). So I
> > proceed to select Liability and Expense account types, and click OK. I'm
> > then presented with a subset of my account tree, listing only the Expense
> > and Liability accounts.
>
> Here's something else to think about: I really didn't count on people
> wanting to budget for Liability accounts.  As a matter of fact, I
> strongly considered not even having an "Account Types" option at all,
> and just forcing it to Income and Expense.  I only left it as a "give
> 'em rope" option.
>
<snip liability stuff>

How would a user then budget for $X to be spent paying down Credit Card (or
loan) balances? Or are Credit Cards different from Liability accounts?

I don't know... I'm not an accountant.

Thanks,
Tim

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Re: Budget questions. (wordy)

Chris Shoemaker
On Tue, Nov 08, 2005 at 04:47:27PM -0500, Tim Wunder wrote:
> How would a user then budget for $X to be spent paying down Credit Card (or
> loan) balances? Or are Credit Cards different from Liability accounts?

CCs are liabilities.  I know it seems like the most direct thing to do
is budget for a decreasing liability account.  After all, that's where
you look when you want to see how you're doing.  But what I would do
depends on whether or not the CC debt is "on the books".

The key point is that a cash budget is for planning what you spend and
what you earn -- NOT what you borrow or pay back.  If the CC debt is
"on the books" then when you charge stuff it hits an *expense* account
and the liability account.  Thus, you never have to budget the CC debt
per se, you just budget all the things you're charging.

OTOH, if the CC debt if off the books, say because you started
bookkeeping with CC debt so you have a starting balance on the
liability account, then I'd create a special expense account to
represent the actual expense that incurred that liability.  That
expense account would start at zero and grow as I paid off the debt.
In that case I'd just budget for that account whatever I planned on
paying toward decreasing the liability.

Neither one is more correct than the other.  Which you use depends on
whether you want to track the individual expenses that incur the CC
debt, or just the aggregate.

Hope that helps.

-chris
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Re: Budget questions. (wordy)

Derek Atkins
Chris,

most users I would bet enter a CC->Expense transaction when the
transaction occurs.  So you enter your $2000 HDTV expense when
you buy the TV, not when you pay off your credit card.  However
if you're maintaining a balance on your credit card (or house loan,
or student loan) you want to include that "cash flow" in your
budgeting process.

No, paying down a house loan or a student loan is not an expense
per se, but it is cash flow..  And many people want to budget for
cash flow.  I consider this a must-have feature for a budgeting
system.

-derek

Quoting Chris Shoemaker <[hidden email]>:

> On Tue, Nov 08, 2005 at 04:47:27PM -0500, Tim Wunder wrote:
>> How would a user then budget for $X to be spent paying down Credit Card (or
>> loan) balances? Or are Credit Cards different from Liability accounts?
>
> CCs are liabilities.  I know it seems like the most direct thing to do
> is budget for a decreasing liability account.  After all, that's where
> you look when you want to see how you're doing.  But what I would do
> depends on whether or not the CC debt is "on the books".
>
> The key point is that a cash budget is for planning what you spend and
> what you earn -- NOT what you borrow or pay back.  If the CC debt is
> "on the books" then when you charge stuff it hits an *expense* account
> and the liability account.  Thus, you never have to budget the CC debt
> per se, you just budget all the things you're charging.
>
> OTOH, if the CC debt if off the books, say because you started
> bookkeeping with CC debt so you have a starting balance on the
> liability account, then I'd create a special expense account to
> represent the actual expense that incurred that liability.  That
> expense account would start at zero and grow as I paid off the debt.
> In that case I'd just budget for that account whatever I planned on
> paying toward decreasing the liability.
>
> Neither one is more correct than the other.  Which you use depends on
> whether you want to track the individual expenses that incur the CC
> debt, or just the aggregate.
>
> Hope that helps.
>
> -chris
> _______________________________________________
> gnucash-devel mailing list
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>



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       Member, MIT Student Information Processing Board  (SIPB)
       URL: http://web.mit.edu/warlord/    PP-ASEL-IA     N1NWH
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Re: Budget questions. (wordy)

Chris Shoemaker
On Tue, Nov 08, 2005 at 09:03:58PM -0500, Derek Atkins wrote:
> Chris,
>
> most users I would bet enter a CC->Expense transaction when the
> transaction occurs.  So you enter your $2000 HDTV expense when
> you buy the TV, not when you pay off your credit card.  

Yeah, I expect this is normal usage.  Of course, that means that the
CC payment is straight from assets to liability, e.g. checking account
to CC account -- no expense accounts involved at payment time and you
wouldn't need to budget for them anyway.

> However
> if you're maintaining a balance on your credit card (or house loan,
> or student loan) you want to include that "cash flow" in your
> budgeting process.
>
> No, paying down a house loan or a student loan is not an expense
> per se, but it is cash flow..  And many people want to budget for
> cash flow.  I consider this a must-have feature for a budgeting
> system.
>

Well, the standard budgeting tool for planning cash flow is not the
cash budget, but you can make this work in a couple of ways.

Let's say you "buy" a car with a CC and you want to budget paying it
off.  (1) You could create a Car expense account and as you pay off
the CC, you increase the Car expense account.  It's like you're buying
it a little bit at a time.  or (2) You could pay the CC with an
asset->liability transfer, with *no record* of what the actual expense
was, and then use the CC liability account in the cash budget.

Personally, in this case I would prefer (1), since it records the
expense and (2) is a non-standard use of a cash budget.  (E.g. you'd
have to budget negative values, something a cash budget doesn't
usually have.)

In any situation where your records actually *have* to record what you
spend money on, (1) is mandatory.(*)  What I wonder is whether allowing
(2) is worth the (possible) confusion.

(*) Actually, a real accountant would probably do it a bit
differently; count the whole expense up front, and pay down the
liability account, but the point is, you *have* to use an expense
account, and all liability accounts have to start at zero.  You can't
just *create* liability by setting an opening balance on a liability
account.

-chris
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Re: Budget questions. (wordy)

Derek Atkins
Quoting Chris Shoemaker <[hidden email]>:

> On Tue, Nov 08, 2005 at 09:03:58PM -0500, Derek Atkins wrote:
>> Chris,
>>
>> most users I would bet enter a CC->Expense transaction when the
>> transaction occurs.  So you enter your $2000 HDTV expense when
>> you buy the TV, not when you pay off your credit card.
>
> Yeah, I expect this is normal usage.  Of course, that means that the
> CC payment is straight from assets to liability, e.g. checking account
> to CC account -- no expense accounts involved at payment time and you
> wouldn't need to budget for them anyway.

Why not?  If I make a $1000 salary in a budget period, I want to budget
to all my "expenses", and paying down a liability is an "expense" (even
though it is certainly not an Expense).  The idea is to budget Cash Flow,
not P&L or the Balance Sheet.

>> However
>> if you're maintaining a balance on your credit card (or house loan,
>> or student loan) you want to include that "cash flow" in your
>> budgeting process.
>>
>> No, paying down a house loan or a student loan is not an expense
>> per se, but it is cash flow..  And many people want to budget for
>> cash flow.  I consider this a must-have feature for a budgeting
>> system.
>>
>
> Well, the standard budgeting tool for planning cash flow is not the
> cash budget, but you can make this work in a couple of ways.

Honestly I'm trying to talk about functionality, not the tool.
If we have something that isn't a GAAP Cash Budget I certainly
think users will still be very happy.  If we cannot model cash
flow, cannot budget for paying down a liability, then I think
users will be very UNhappy.

> Let's say you "buy" a car with a CC and you want to budget paying it
> off.  (1) You could create a Car expense account and as you pay off
> the CC, you increase the Car expense account.  It's like you're buying
> it a little bit at a time.  or (2) You could pay the CC with an
> asset->liability transfer, with *no record* of what the actual expense
> was, and then use the CC liability account in the cash budget.
>
> Personally, in this case I would prefer (1), since it records the
> expense and (2) is a non-standard use of a cash budget.  (E.g. you'd
> have to budget negative values, something a cash budget doesn't
> usually have.)

Except (1) isn't true.  The car is an asset, not an expense.  Even as
you pay off the Liability (be it a CC or a Loan), the only Expense
involved is the interest.  The principal pays off the Liability, but
the car itself is still an Asset.  The value of the car only decreases
due to Depreciation.

> In any situation where your records actually *have* to record what you
> spend money on, (1) is mandatory.(*)  What I wonder is whether allowing
> (2) is worth the (possible) confusion.
>
> (*) Actually, a real accountant would probably do it a bit
> differently; count the whole expense up front, and pay down the
> liability account, but the point is, you *have* to use an expense
> account, and all liability accounts have to start at zero.  You can't
> just *create* liability by setting an opening balance on a liability
> account.

Um, see above.  The Car is not an expense.  It's an asset, so when you
buy the car it's

  Liabilities:Car Loan -> Assets:Car

then as you pay the liability it's:

  Assets:Checking -> L:Car Loan + Expenses:Car Loan Interest

The budgetting tool needs to keep track of this part and budget for this
periodic transaction.

The way to do it is to realize that a Liability is an "inverse" account
and just invert the numbers, so you're still budgeting a positive amount.
c.f. the "invert Credit Accounts" preference.

> -chris

-derek
--
       Derek Atkins, SB '93 MIT EE, SM '95 MIT Media Laboratory
       Member, MIT Student Information Processing Board  (SIPB)
       URL: http://web.mit.edu/warlord/    PP-ASEL-IA     N1NWH
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Re: Budget questions. (wordy)

Chris Shoemaker
On Tue, Nov 08, 2005 at 09:46:58PM -0500, Derek Atkins wrote:

> Quoting Chris Shoemaker <[hidden email]>:
>
> >On Tue, Nov 08, 2005 at 09:03:58PM -0500, Derek Atkins wrote:
> >>Chris,
> >>
> >>most users I would bet enter a CC->Expense transaction when the
> >>transaction occurs.  So you enter your $2000 HDTV expense when
> >>you buy the TV, not when you pay off your credit card.
> >
> >Yeah, I expect this is normal usage.  Of course, that means that the
> >CC payment is straight from assets to liability, e.g. checking account
> >to CC account -- no expense accounts involved at payment time and you
> >wouldn't need to budget for them anyway.
>
> Why not?  If I make a $1000 salary in a budget period, I want to budget
> to all my "expenses", and paying down a liability is an "expense" (even
> though it is certainly not an Expense).  The idea is to budget Cash Flow,
> not P&L or the Balance Sheet.

Is your question "why wouldn't you need to budget for the CC payment"?
If so, the answer is because you already budgeted for every expense
when the liability was incurred.  (At least, that's what I thought you
meant by "enter a CC->Expense transaction when the transaction
occurs.")  You don't need to budget for the same thing twice, once when
you "charge it" and again when you "pay it off".  You only need to
budget for one or the other.

> >Let's say you "buy" a car with a CC and you want to budget paying it
> >off.  (1) You could create a Car expense account and as you pay off
> >the CC, you increase the Car expense account.  It's like you're buying
> >it a little bit at a time.  or (2) You could pay the CC with an
> >asset->liability transfer, with *no record* of what the actual expense
> >was, and then use the CC liability account in the cash budget.
> >
> >Personally, in this case I would prefer (1), since it records the
> >expense and (2) is a non-standard use of a cash budget.  (E.g. you'd
> >have to budget negative values, something a cash budget doesn't
> >usually have.)
>
> Except (1) isn't true.  The car is an asset, not an expense.  Even as

Umm... If you *bought* the car (vice getting it for free) then it's
both.  You pay money (any decrease in an asset account *may* be
considered an expense) for the car.  But, you *may* instead consider
the paid money to be decreasing a liability which you traded for a
real asset.  One is not more or less "true" than the other.  Each
achieves a different record-keeping purpose.  They both are zero-sum,
balanced views.

> you pay off the Liability (be it a CC or a Loan), the only Expense
> involved is the interest.  The principal pays off the Liability, but
> the car itself is still an Asset.  The value of the car only decreases
> due to Depreciation.

Don't forget that the car actually cost you something.  Depreciation
is a real expense.  You have to account for the expense somewhere,
either when you buy it or when it rusts to dust or somewhere in
between.  One very common method is to count the expense up front,
when you buy it.  If you prefer, this is like depreciating the asset
to zero the day you buy it, except you skip the zero-sum entries in
the asset account.  The reason this is so common is because it's
tedious to create an asset account for everything you buy.

>
> >In any situation where your records actually *have* to record what you
> >spend money on, (1) is mandatory.(*)  What I wonder is whether allowing
> >(2) is worth the (possible) confusion.
> >
> >(*) Actually, a real accountant would probably do it a bit
> >differently; count the whole expense up front, and pay down the
> >liability account, but the point is, you *have* to use an expense
> >account, and all liability accounts have to start at zero.  You can't
> >just *create* liability by setting an opening balance on a liability
> >account.
>
> Um, see above.  The Car is not an expense.  It's an asset, so when you
> buy the car it's

:) Where are you getting all these free cars from?  Can I have a
couple?  Just kidding...

Seriously, this is a false dichotomy.  Any increase in a liability can
correspond to *either* increased assets or a delayed expense.  The
decision is up to the discretion of the record keeper and is
influenced by peoples' particular objectives.  One person can consider
a car as a relatively liquid asset because they plan to sell it and
make a profit.  Someone else can consider the same car as a
non-recoverable expense, because they plan on driving it into the
ground.  Likewise, I tend to consider student loans as an expense, but
I could imagine someone who was extemely proud of their education
creating a corresponding asset account for their education, and saying
"Education isn't an expense! It's an investment!"  They could pay for
their entire education without hitting an expense account.

I guess the budgeting tool should support all kinds, huh?  You've
convinced me the non-Income/Expense accounts need to be available.

> The way to do it is to realize that a Liability is an "inverse" account
> and just invert the numbers, so you're still budgeting a positive amount.
> c.f. the "invert Credit Accounts" preference.

I saw that and may have actually implemented it.  (It's trivial.)
But, there's an abuse of intuition here either way you go.  If you
know what it means, you may be very annoyed at a budget that showed
account value decreases as positive numbers.  OTOH, if you're
*thinking* about the expense when you budget for the decreasing
liability (which I think many people would) you might be disconcerted
by the negative values.  But, it's a preference setting IIRC, right?

-chris
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Re: Budget questions. (wordy)

Daniel Widyono

Phew!  What a thorough education that y'all are giving me, on something I
thought was *VERY* simple.  IMHO I think the best thing would be to make
budgeting as flexible as possible (e.g. in this case, allow budgeting of more
than just I/E) and then *document the heck out of the different standard
usages / methodologies (e.g. business best practices vs. standard home
user)*.

You'd be invoking the old unix standby of giving 'em enough rope to hang
themselves with, and then teaching them through "man pages" (ca. 1980's) /
"html docs" (ca. 1990's) / "cms's" (ca. 2000's) / "ODF's" (forever)... dates
stretched via comic license.

Also, I really do enjoy the free Finances 101 lessons I get on this list.  It
gives me a new appreciation (no pun intended) of the $1 car I "bought" some
time ago, as well as all the pain I go through to try to budget my personal
finances.

_Thank you_
Dan W.
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Re: Budget questions. (wordy)

Andrew Sackville-West
In reply to this post by Chris Shoemaker
Not to jump in the middle but I think you guys are trying to compare
apple to cars. I don't think it really matters how a person developed a
liability (car loan, mortgage, CC, whatever), what does matter from a
Personal Budgeting standpoint is how you can afford to pay that sucker
down. If I bring in $1000 a month, pay $300 for groceries, $150 for
utilities, $50 for cable (gotta have TV man!), $$100 for beer and $400
to the loan for that shiny new car that I sleep in, I need to be able to
reflect ALL those items in my budget. This may not be *B*udget, but it
is budget. It should be intuitively easy to include money paid to a
liability in a budget. I think most people understand, if you explain it
to them, that they are either expensing the car over time or
depreciating it or whatever, but that is immaterial when it comes time
to figure out how to pay the bills. People want to just list that $400
along with all the other monthly "expenses" (that is, things that suck
up my money) regardless of whether it is actually an Expense or is
reducing a liability.

Granted there are users that want to be able to do capital budgets and
cash budgets and all that, but I imagine the vast majority don't give a
fig.

my .02.

thanks as always for the great work.

Andrew

Chris Shoemaker wrote:

> On Tue, Nov 08, 2005 at 09:46:58PM -0500, Derek Atkins wrote:
>
>>Quoting Chris Shoemaker <[hidden email]>:
>>
>>
>>>On Tue, Nov 08, 2005 at 09:03:58PM -0500, Derek Atkins wrote:
>>>
>>>>Chris,
>>>>
>>>>most users I would bet enter a CC->Expense transaction when the
>>>>transaction occurs.  So you enter your $2000 HDTV expense when
>>>>you buy the TV, not when you pay off your credit card.
>>>
>>>Yeah, I expect this is normal usage.  Of course, that means that the
>>>CC payment is straight from assets to liability, e.g. checking account
>>>to CC account -- no expense accounts involved at payment time and you
>>>wouldn't need to budget for them anyway.
>>
>>Why not?  If I make a $1000 salary in a budget period, I want to budget
>>to all my "expenses", and paying down a liability is an "expense" (even
>>though it is certainly not an Expense).  The idea is to budget Cash Flow,
>>not P&L or the Balance Sheet.
>
>
> Is your question "why wouldn't you need to budget for the CC payment"?
> If so, the answer is because you already budgeted for every expense
> when the liability was incurred.  (At least, that's what I thought you
> meant by "enter a CC->Expense transaction when the transaction
> occurs.")  You don't need to budget for the same thing twice, once when
> you "charge it" and again when you "pay it off".  You only need to
> budget for one or the other.
>
>
>>>Let's say you "buy" a car with a CC and you want to budget paying it
>>>off.  (1) You could create a Car expense account and as you pay off
>>>the CC, you increase the Car expense account.  It's like you're buying
>>>it a little bit at a time.  or (2) You could pay the CC with an
>>>asset->liability transfer, with *no record* of what the actual expense
>>>was, and then use the CC liability account in the cash budget.
>>>
>>>Personally, in this case I would prefer (1), since it records the
>>>expense and (2) is a non-standard use of a cash budget.  (E.g. you'd
>>>have to budget negative values, something a cash budget doesn't
>>>usually have.)
>>
>>Except (1) isn't true.  The car is an asset, not an expense.  Even as
>
>
> Umm... If you *bought* the car (vice getting it for free) then it's
> both.  You pay money (any decrease in an asset account *may* be
> considered an expense) for the car.  But, you *may* instead consider
> the paid money to be decreasing a liability which you traded for a
> real asset.  One is not more or less "true" than the other.  Each
> achieves a different record-keeping purpose.  They both are zero-sum,
> balanced views.
>
>
>>you pay off the Liability (be it a CC or a Loan), the only Expense
>>involved is the interest.  The principal pays off the Liability, but
>>the car itself is still an Asset.  The value of the car only decreases
>>due to Depreciation.
>
>
> Don't forget that the car actually cost you something.  Depreciation
> is a real expense.  You have to account for the expense somewhere,
> either when you buy it or when it rusts to dust or somewhere in
> between.  One very common method is to count the expense up front,
> when you buy it.  If you prefer, this is like depreciating the asset
> to zero the day you buy it, except you skip the zero-sum entries in
> the asset account.  The reason this is so common is because it's
> tedious to create an asset account for everything you buy.
>
>
>>>In any situation where your records actually *have* to record what you
>>>spend money on, (1) is mandatory.(*)  What I wonder is whether allowing
>>>(2) is worth the (possible) confusion.
>>>
>>>(*) Actually, a real accountant would probably do it a bit
>>>differently; count the whole expense up front, and pay down the
>>>liability account, but the point is, you *have* to use an expense
>>>account, and all liability accounts have to start at zero.  You can't
>>>just *create* liability by setting an opening balance on a liability
>>>account.
>>
>>Um, see above.  The Car is not an expense.  It's an asset, so when you
>>buy the car it's
>
>
> :) Where are you getting all these free cars from?  Can I have a
> couple?  Just kidding...
>
> Seriously, this is a false dichotomy.  Any increase in a liability can
> correspond to *either* increased assets or a delayed expense.  The
> decision is up to the discretion of the record keeper and is
> influenced by peoples' particular objectives.  One person can consider
> a car as a relatively liquid asset because they plan to sell it and
> make a profit.  Someone else can consider the same car as a
> non-recoverable expense, because they plan on driving it into the
> ground.  Likewise, I tend to consider student loans as an expense, but
> I could imagine someone who was extemely proud of their education
> creating a corresponding asset account for their education, and saying
> "Education isn't an expense! It's an investment!"  They could pay for
> their entire education without hitting an expense account.
>
> I guess the budgeting tool should support all kinds, huh?  You've
> convinced me the non-Income/Expense accounts need to be available.
>
>
>>The way to do it is to realize that a Liability is an "inverse" account
>>and just invert the numbers, so you're still budgeting a positive amount.
>>c.f. the "invert Credit Accounts" preference.
>
>
> I saw that and may have actually implemented it.  (It's trivial.)
> But, there's an abuse of intuition here either way you go.  If you
> know what it means, you may be very annoyed at a budget that showed
> account value decreases as positive numbers.  OTOH, if you're
> *thinking* about the expense when you budget for the decreasing
> liability (which I think many people would) you might be disconcerted
> by the negative values.  But, it's a preference setting IIRC, right?
>
> -chris
> _______________________________________________
> gnucash-devel mailing list
> [hidden email]
> https://lists.gnucash.org/mailman/listinfo/gnucash-devel
>
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Re: Budget questions. (wordy)

Thomas Bushnell BSG
Andrew Sackville-West <[hidden email]> writes:

> Not to jump in the middle but I think you guys are trying to compare
> apple to cars. I don't think it really matters how a person developed a
> liability (car loan, mortgage, CC, whatever), what does matter from a
> Personal Budgeting standpoint is how you can afford to pay that sucker
> down.

What is going on here is that there are simply two different kinds of
budgeting: expense budgeting, and cash budgeting.

Any decent budgeting system would do both.

I'm only a poor graduate student, and I do my annual budgeting with a
gnumeric spreadsheet, and I certainly do both.

Thomas
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Re: Budget questions. (wordy)

Tim Wunder (Lists)
In reply to this post by Chris Shoemaker
On Tuesday 08 November 2005 9:37 pm, someone claiming to be Chris Shoemaker
wrote:

> On Tue, Nov 08, 2005 at 09:03:58PM -0500, Derek Atkins wrote:
> > Chris,
> >
> > most users I would bet enter a CC->Expense transaction when the
> > transaction occurs.  So you enter your $2000 HDTV expense when
> > you buy the TV, not when you pay off your credit card.
>
> Yeah, I expect this is normal usage.  Of course, that means that the
> CC payment is straight from assets to liability, e.g. checking account
> to CC account -- no expense accounts involved at payment time and you
> wouldn't need to budget for them anyway.
>
> > However
> > if you're maintaining a balance on your credit card (or house loan,
> > or student loan) you want to include that "cash flow" in your
> > budgeting process.
> >
> > No, paying down a house loan or a student loan is not an expense
> > per se, but it is cash flow..  And many people want to budget for
> > cash flow.  I consider this a must-have feature for a budgeting
> > system.
>
> Well, the standard budgeting tool for planning cash flow is not the
> cash budget, but you can make this work in a couple of ways.
>
"cash budget" vs "expense budget"? You keep using the term "cash budget" as if
I should know what you're talking about, but, well, I dont :(

> Let's say you "buy" a car with a CC and you want to budget paying it
> off.  (1) You could create a Car expense account and as you pay off
> the CC, you increase the Car expense account.  It's like you're buying
> it a little bit at a time.  or (2) You could pay the CC with an
> asset->liability transfer, with *no record* of what the actual expense
> was, and then use the CC liability account in the cash budget.
>

OK, in my case, the record of the expense was created when the liability was
incurred. Say I used a CC to buy a fridge using a 0% interest CC card. Now I
want to budget paying down the liability. That would seem to be choice (2),
if I'm following along. The same can be applied to a loan. I create a loan
liability account to pay for a new car. The creation of the balance on the
liability account is causes a balancing entry to the asset account for the
new car.

> Personally, in this case I would prefer (1), since it records the
> expense and (2) is a non-standard use of a cash budget.  (E.g. you'd
> have to budget negative values, something a cash budget doesn't
> usually have.)
>

OK, I still need a rudimentary tutorial on what other kind of budget, rather
than a cash budget, could be utilized to track, for lack of a better way to
put it, where the user plans for the money to go month to month. Is the
budget intended to ship (if all goes well) in G2 a cash budget?

> In any situation where your records actually *have* to record what you
> spend money on, (1) is mandatory.(*)  What I wonder is whether allowing
> (2) is worth the (possible) confusion.
>

But (2) does *not* preclude the existence of (1). By doing an Asset->Liability
transfer (2) I can still find out what the expense was (or asset purchase, in
the case of buying a fridge), even though at the time of the (2) transaction,
record of the expense is not made. The record of the expense (1) was made
when the liability was incurred.

> (*) Actually, a real accountant would probably do it a bit
> differently; count the whole expense up front, and pay down the
> liability account, but the point is, you *have* to use an expense
> account, and all liability accounts have to start at zero.  You can't
> just *create* liability by setting an opening balance on a liability
> account.
>

Hmmm... don't wanna *be* a real accountant, I just wanna plan where my money
is going to go over the next 12 months ;)

Thanks,
Tim

--
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Re: Budget questions. (wordy)

Chris Shoemaker
On Wed, Nov 09, 2005 at 08:29:28AM -0500, Tim Wunder wrote:
> "cash budget" vs "expense budget"? You keep using the term "cash budget" as if
> I should know what you're talking about, but, well, I dont :(

A cash budget is probably what you think of when you think "budget".
Google can provide formal definitions if you like, but your intuition
is probably good enough.  Note: I didn't use the term "expense budget".
Thomas did, and I don't know exactly what that means, but he's right
that there's more than one type.  There are several types - all
similar but different.  (Like a claw hammer, sledge hammer, finishing
hammer, mallet, etc.)

> > Let's say you "buy" a car with a CC and you want to budget paying it
> > off.  (1) You could create a Car expense account and as you pay off
> > the CC, you increase the Car expense account.  It's like you're buying
> > it a little bit at a time.  or (2) You could pay the CC with an
> > asset->liability transfer, with *no record* of what the actual expense
> > was, and then use the CC liability account in the cash budget.
> >
>
> OK, in my case, the record of the expense was created when the liability was
> incurred. Say I used a CC to buy a fridge using a 0% interest CC card. Now I
> want to budget paying down the liability. That would seem to be choice (2),
> if I'm following along. The same can be applied to a loan. I create a loan
> liability account to pay for a new car. The creation of the balance on the
> liability account is causes a balancing entry to the asset account for the
> new car.

This is a good example, because it shows two different ways of doing
the same thing.  I'll call them the "expense" method and the "asset"
method, since they both revolve around a liability.  You used the
expense method for the fridge:

"bought a fridge"
Expense:Household               $600
Liability:CC             $600

[both accounts increase]  Later,

"CC payment"
Assets:Checking     $200
Liability::CC               $200

"CC payment"
Assets:Checking     $200
Liability::CC               $200

"CC payment"
Assets:Checking     $200
Liability::CC               $200
[both accounts decrease]

For budgeting purposes, you may only want to budget for the cost of
the fridge *once*.  You can describe your plan in one of two ways: "I
plan to spend $600 on Household expenses this month. (ignoring the CC
payment)" OR "I plan to have 3 $200 CC bills these months.  (ignoring
what you bought.)

The first budget looks like:

Budget A:
                Jan     Feb     Mar     Apr
Ex:Household    600     0       0       0

The second budget looks like:

Budget B:
                Jan     Feb     Mar     Apr
Asset:Checking    +0    -200    -200    -200    
Lia:CC          +600    -200    -200    -200

[I wrote +/- to emphasize that this is only the *difference* in month
to month account values, it has nothing to do with the account
balance. ]

Both budgets describe the same plan with different details - The first
emphasizes *what* you (plan to) spend your money on; the second
emphasizes *when* you (plan to) spend your money.  You may only care
about one or the other, and are free to choose appropriately.  Of
course, if you care about both you have to plan for both:

Budget C:
                Jan     Feb     Mar     Apr
Asset:Checking   +0    -200    -200    -200    
Lia:CC          600    -200    -200    -200
Ex:Household    600       0       0       0

Now let's look at the "asset" method, and add an extra zero for the
car.  You may choose to record your new liability with an offseting
asset instead of an expense:

"Bought a new car"
Asset:NewCar            $6000
Liabilty:CC    $6000

[both accounts increase] Later,

"Car payment"
Asset:Checking   $2000
Liability:CC            $2000

"Car payment"
Asset:Checking   $2000
Liability:CC            $2000

"Car payment"
Asset:Checking   $2000
Liability:CC            $2000
[both accounts decrease]

Again, how you budget for these transactions depends on whether you
care more about *what* you spend money on or *when* you spend your
money.

Budget D  "the what":
                Jan     Feb       Mar     Apr
Asset:NewCar    +6000     0         0       0

Budget E  "the when":
                Jan      Feb       Mar     Apr
Asset:Checking      0  -2000     -2000   -2000
Lia:CC          +6000  -2000     -2000   -2000

Budget F  "the what and when":
                Jan      Feb       Mar     Apr
Asset:NewCar    +6000      0         0       0
Asset:Checking      0  -2000     -2000   -2000
Lia:CC          +6000  -2000     -2000   -2000


Notice that Budgets B and E are essentially the same.  They're both
essentially differential views of a cash-flow projection.  (There's
nothing wrong with that, but many people find it easier to interpret a
cash-flow projection by looking at the actual account balances over
time, since you're really trying to answer the question "Are we going
to have enough money at the right times?"  which you can answer pretty
easily by looking for an account balance to go negative.)

Also notice that Budgets A and D, are similar, but reflect the
different choices of using an expense account or an asset account.

That begs the question: "When should I use the asset method and when
should I use the expense method?"  If you use the asset method, and
you want your asset accounts to accurately reflect your real assets
you *have* to make depreciation entries to account for depreciation.
There's no such requirement for expense accounts.  So, my
unprofessional recommendation would be to only use the asset method if:

A) You must have an accurate asset picture, say for reporting purposes
or for precise net-worth estimates; OR

B) You plan on deducting depreciation from your income for tax
purposes - something that businesses commonly do, and individuals
commonly don't; OR

C) You find it easier than the expense method and don't care if you
have unrealistically inflated asset accounts over time.

Otherwise, I'd stick with the expense method - fewer things to record,
since you're not tracking incremental depreciation of an asset.
 
> OK, I still need a rudimentary tutorial on what other kind of budget, rather
> than a cash budget, could be utilized to track, for lack of a better way to
> put it, where the user plans for the money to go month to month. Is the
> budget intended to ship (if all goes well) in G2 a cash budget?

Yes, and that's what a cash budget tracks.  That's how I use it, and I
think it will work for you, too.

> > Let's say you "buy" a car with a CC and you want to budget paying it
> > off.  (1) You could create a Car expense account and as you pay off
> > the CC, you increase the Car expense account.  It's like you're buying
> > it a little bit at a time.  or (2) You could pay the CC with an
> > asset->liability transfer, with *no record* of what the actual expense
> > was, and then use the CC liability account in the cash budget.
> >
> > In any situation where your records actually *have* to record what you
> > spend money on, (1) is mandatory.(*)  What I wonder is whether allowing
> > (2) is worth the (possible) confusion.
> >
>
> But (2) does *not* preclude the existence of (1). By doing an Asset->Liability
> transfer (2) I can still find out what the expense was (or asset purchase, in
> the case of buying a fridge), even though at the time of the (2) transaction,
> record of the expense is not made. The record of the expense (1) was made
> when the liability was incurred.

You're right.  I shouldn't have said "no record", but notice an
important difference: Where is the information about *what* the money
was spent for?  In (1), it's in each of the expense transactions in
the various expense accounts.  In (2), it's in the text field of the
transaction that paid off the debt.  What description to use if you
don't pay off the whole fridge?  Or if you CC bill includes the fridge
plus entertainment plus medical, etc.?  Sure, you can do it with
splits, but it's awkward.  And what report can you run when you want
to know how much you spent on medical?

Liability accounts are usually organized around *whom* you owe, not
*what* you bought - that's what expense accounts are for.  Looking in
liability accounts for information about how you spent your money may
happen to work if there's a one-to-one relation between what you
borrow money for and whom you borrow it from.  I'm not going to say
that's TheWrongWay, but I'm not going to recommend it either.  Someone
who _needs_ to do it that way already knows _why_ they need to do it that
way.

> Hmmm... don't wanna *be* a real accountant, I just wanna plan where my money
> is going to go over the next 12 months ;)

Same here, buddy.  :)  I'm interested in hearing how you fare.

-chris
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Re: Budget questions. (wordy)

Chris Shoemaker
In reply to this post by Andrew Sackville-West
On Tue, Nov 08, 2005 at 11:19:20PM -0800, Andrew Sackville-West wrote:

> Not to jump in the middle but I think you guys are trying to compare
> apple to cars. I don't think it really matters how a person developed a
> liability (car loan, mortgage, CC, whatever), what does matter from a
> Personal Budgeting standpoint is how you can afford to pay that sucker
> down. If I bring in $1000 a month, pay $300 for groceries, $150 for
> utilities, $50 for cable (gotta have TV man!), $$100 for beer and $400
> to the loan for that shiny new car that I sleep in, I need to be able to
> reflect ALL those items in my budget. This may not be *B*udget, but it
> is budget. It should be intuitively easy to include money paid to a
> liability in a budget. I think most people understand, if you explain it
> to them, that they are either expensing the car over time or
> depreciating it or whatever, but that is immaterial when it comes time
> to figure out how to pay the bills. People want to just list that $400
> along with all the other monthly "expenses" (that is, things that suck
> up my money) regardless of whether it is actually an Expense or is
> reducing a liability.

Ok.  I agree: no matter how you account the incurring of the
liability, you want to budget paying off the debt.  So do you think
that the way the budgeting form currently lets you mix liability and
expense accounts is intuitive then?

-chris
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Re: Budget questions. (wordy)

Thomas Bushnell BSG
In reply to this post by Chris Shoemaker
Chris Shoemaker <[hidden email]> writes:

> A cash budget is probably what you think of when you think "budget".

Hah.  I think of both. :)

> Google can provide formal definitions if you like, but your intuition
> is probably good enough.  Note: I didn't use the term "expense budget".
> Thomas did, and I don't know exactly what that means, but he's right
> that there's more than one type.  

I use a modified accrual method for my own finances, which is
essentially a cash-basis accounting with particular transaction types
counted on an accrual basis.  I have some assets which are not
cashable nor fixed, for example, my prepaid starbucks card, multi-ride
rail tickets, and the like, for which the purchase of the asset is not
recorded as an expense, but as an asset transfer, and then I only
count the expense as I spend down the balance on the card or use up
the multi-ride tickets.

My expense budget simply counts all the expense accounts in my
bookkeeping; it is convenient to use exactly the same budgeting
categories as I have expense accounts.  More complicated organizations
do not normally treat budgeting categories and accounts so closely.
The expense budget (really it's an income/expense budget) predicts my
expenses.  Paying the car payment is an asset/liability transfer and
an income expense payment; the expense budget only counts the latter
of course, because only the latter is an expense.  The expense budget
(since it's really an income/expense budget) also predicts income for
the year, which again is arranged just the way my income accounts are.

I count my tuition waivers as income, and the tuition for which they
pay as an expense.  This is more sensible for me, because I get the
waiver if and only if I work as a TA that term, which doesn't happen
every term.

The cash budget is then a different beast.  I could do it ground up,
but instead it cribs figures from the expense budget.  This works well
because I am a simple case.  So I consider annual cash credits and
debits.  My cash debits are my total income plus any loans I plan to
take out.  (Strictly speaking, if I receive income which is
noncashable, and I don't expend it that year [a starbucks card, which
I receive as a gift on Dec. 25, for example], I should also subtract
from cash debits, but the amount of these are negligible in my case.)
My cash credits are my expenses, minus those expenses which are not
paid from cash assets (for example, depreciation on the car,
capitalized student load interest, and so forth), plus additional cash
payments (debt retirement, asset transfers).

The cash budget tells me a net cash flow for the year, which has no
necessary relation to the net gain/loss for the year.  I can then
budget cash month-to-month.  I track the exact month my income and
cashable loans come in, because they are quite irregular (being a
student and all), but I make the simplifying assumption that the cash
credits are paid out one twelfth in each month.  I can then know what
my projected cash balance is at the beginning and end of each month.
Some months will end with a negative cash balance; in those months my
credit card balance will be higher than my cash in the bank.  This
system lets me know at a glance how much credit I will need to have
available at which times, which is convenient.

Consider my auto loan.  I have an asset: the car.  I depreciate the
car (never mind how I do it; it's nothing like the IRS rules, but it
suits me).  Each time I depreciate the car, that's an expense from the
fixed asset account to the car purchase expense account.

I have a liability: the auto loan.  Note that once the loan is set up,
there is no futher relation between the accounting for the car and for
the loan.  Each month I make a car payment; most of that retires the
loan, and is a transfer from cash to the auto loan liability.  Some is
interest, which is an expense.

The annual expense budget does not see the debt retirement at all,
because it is simply not an expense.  I estimate the total interest I
will be paying that year (no need for it to be exact, so I don't
bother with careful precision) and enter that on the expense budget.

For purposes of tracking cash, however, I certainly had better keep
track of the debt retirement portion too!  That's why I have a cash
budget.  So the cash credits section of the cash budget starts off
with "total expenses", and then adds to it "auto loan debt
retirement".  This number is simply the total annual car payment my
bank expects (I know this exactly) minus my expected interest payment.
Note that errors in the expected interest payment, do not affect the
cash picture at all; if I predict too much interest expense, I will
predict correspondingly less debt retirement, and the sum of the two
will remain constant.

Thomas

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Re: Budget questions. (wordy)

Chris Shoemaker
Hmm... that's funny.  What you call an "expense" budget is *exactly*
how I budget, too, but I've been calling it a "cash budget".  My
source for that usage is an accounting textbook that has a whole
chapter for cash budgeting another for capital budgeting.  I think its
definitions were chosen to contrast those two.  But, some googling
shows your use of "expense budget" and "cash budget" are commonplace.
I think I'll start calling it "expense budgeting", because, I must
say, that term does make more sense to me.

Anyway, these two are much more similar than either is to capital
budgeting.

On Wed, Nov 09, 2005 at 02:37:46PM -0800, Thomas Bushnell BSG wrote:
> My expense budget simply counts all the expense accounts in my
> bookkeeping; it is convenient to use exactly the same budgeting
> categories as I have expense accounts.  More complicated organizations
> do not normally treat budgeting categories and accounts so closely.

I informally polled a few professional accountants on this question,
and the consensus was that they generally *do* try to keep budgeting
categories as close as possible to expense accounts, down to a certain
level of detail.  When there's a difference it's usually just that the
expense accounts are more specific than the budget categories.

> The cash budget is then a different beast.  I could do it ground up,
> but instead it cribs figures from the expense budget.  This works well
> because I am a simple case.  So I consider annual cash credits and
> debits.  My cash debits are my total income plus any loans I plan to
> take out.  (Strictly speaking, if I receive income which is
> noncashable, and I don't expend it that year [a starbucks card, which
> I receive as a gift on Dec. 25, for example], I should also subtract
> from cash debits, but the amount of these are negligible in my case.)
> My cash credits are my expenses, minus those expenses which are not
> paid from cash assets (for example, depreciation on the car,
> capitalized student load interest, and so forth), plus additional cash
> payments (debt retirement, asset transfers).

Your description of "cash budgeting" sounds like you're summing all
cash debits and credits into one number for each period.  That seems
like generating a periodic projected cash-flow report, yes?  If you
make budget entries for all your income, expense, liability and cash
assets, wouldn't you get this number by summing the column for each
period?

A "total" row and column are something that I want to eventually add
to the budget report.  As it is, I still end up exporting the budget
report to html and beautifying it and adding summations, but it'd be
nice to see the summations before exporting.

-chris
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Re: Budget questions. (wordy)

Thomas Bushnell BSG
Chris Shoemaker <[hidden email]> writes:

> I informally polled a few professional accountants on this question,
> and the consensus was that they generally *do* try to keep budgeting
> categories as close as possible to expense accounts, down to a certain
> level of detail.  When there's a difference it's usually just that the
> expense accounts are more specific than the budget categories.

Sure; all I mean is that for me they are *exactly* the same; the same
was true when I was a church parish treasurer.  More sophisticated
organizations may need more flexibility.

> Your description of "cash budgeting" sounds like you're summing all
> cash debits and credits into one number for each period.  That seems
> like generating a periodic projected cash-flow report, yes?  

Yes, except that budgeting and accounting are different tasks in my
thinking.  I'm content to continue budgeting with gnumeric; it's a
more static process.  (I make one budget in the year, I tweak it as
necessary.  I enter hundreds and hundreds and hundreds of transactions
in my accounting in the same year.)

> If you make budget entries for all your income, expense, liability
> and cash assets, wouldn't you get this number by summing the column
> for each period?

I don't know, I don't enter budget entries in gnucash.  So I don't
know what those entries are.

I was describing the way I think about it.  I hope that gnucash can
support my model; if it doesn't I'm very likely to continue budgeting
the way I do now, in gnumeric.

Budgeting, unlike accounting, is not so standardized.  

Thomas
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Re: Budget questions. (wordy)

Thomas Bushnell BSG
Thomas Bushnell BSG <[hidden email]> writes:

>> Your description of "cash budgeting" sounds like you're summing all
>> cash debits and credits into one number for each period.  That seems
>> like generating a periodic projected cash-flow report, yes?  
>
> Yes, except that budgeting and accounting are different tasks in my
> thinking.  I'm content to continue budgeting with gnumeric; it's a
> more static process.  (I make one budget in the year, I tweak it as
> necessary.  I enter hundreds and hundreds and hundreds of transactions
> in my accounting in the same year.)

My agreement here was over-hasty.

My cash budget is, in principle, a complete list of expected cash
sources (debits) and sinks (credits), organized month by month.  (I
don't bother budgeting expenses on more than an annual basis.)

The rest is an optimization, not a change.  I generate this list by
cribbing numbers from the expense budget, but it's not a different
kind of thing.  The apparent differences were a way of describing my
short-hand, not anything else.

Thomas

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Re: Budget questions. (wordy)

Chris Shoemaker
On Wed, Nov 09, 2005 at 07:46:03PM -0800, Thomas Bushnell BSG wrote:

> Thomas Bushnell BSG <[hidden email]> writes:
>
> >> Your description of "cash budgeting" sounds like you're summing all
> >> cash debits and credits into one number for each period.  That seems
> >> like generating a periodic projected cash-flow report, yes?  
> >
> > Yes, except that budgeting and accounting are different tasks in my
> > thinking.  I'm content to continue budgeting with gnumeric; it's a
> > more static process.  (I make one budget in the year, I tweak it as
> > necessary.  I enter hundreds and hundreds and hundreds of transactions
> > in my accounting in the same year.)
>
> My agreement here was over-hasty.
>
> My cash budget is, in principle, a complete list of expected cash
> sources (debits) and sinks (credits), organized month by month.  (I
> don't bother budgeting expenses on more than an annual basis.)

That's an interesting point.  That means your month-to-month variation
doesn't come from changing expenses, since you just divide your total
cash credits by 12.  It can only be due to changing income and loans.

My code assumes you have only one budgeting frequency for the entire
budget, so it sounds like you'd want to easily enter the annual amount
and have it automatically distributed over 12 months.

> The rest is an optimization, not a change.  I generate this list by
> cribbing numbers from the expense budget, but it's not a different
> kind of thing.  The apparent differences were a way of describing my
> short-hand, not anything else.

Yes, that's good.  It means it's possible to generate the same
periodic projected cash flow report from the same numbers as the
budget variance report.

-chris
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