Categorize Expense/Income into Next Month's Budget?

timandmelinda

Hello everyone. Sometimes, we'll make a purchase or have a paycheck at the very end of the month that we plan to use or categorize for the next month's budget. Is there any way to do that in Quicken? The only way I can think of is if I change the date of the transaction to the first day of the next month. Is there any other way?

Thanks!

Tom Young

The first thing I'd point out is that actual payments for purchases or deposits of income into "this month" are actually, really, a "this month" event so one approach is to simply recognize them as simple "timing differences" and having identified them as such, live with them. 

If you want to keep the balances in your Accounts accurate, e.g, "how much money do we have in the bank?", but you want the transactions to somehow be reflected in a different (later) month's Income and Expense report then you don't want to be changing the dates of transactions.  Instead you'll have to (temporarily) account for the transactions differently than you normally would by putting them up on the balance sheet and then reversing the balance sheet entry in the following month.

For example, let's say you paid for a car maintenance in August that you want to show up in the Income and Expense report in September.  Instead of accounting for that payment as:

Debit (increase) Car Maintenance Category   $150.00
Credit (decrease) Cash in Bank Account        $150.00

you'd instead account for that expense as

Debit (increase) Deferred Expense Account  $150.00
Credit (decrease) Cash in Bank Account        $150.00

then in September you'd make the entry

Debit (increase) Car Maintenance Category   $150.00
Credit (decrease) Deferred Expense Account  $150.00

So the purchase would (properly) be included in August on your balance sheet but would be counted as a form of "expense" in September. 

Deferring income would be handled in a similar fashion by putting the income (temporarily) on to the balance sheet, maybe in a "Deferred Income" Account and them moving that income off the balance sheet and back into "income" in the following month.

UKR

OTOH, you could just simply use the budget's rollover capabilities to cover these situations.

Assume you have a big dentist's bill, to come due in October: $1200.
You could budget for it, $100 per month for the entire year.
Further assuming no other dentist's bills come in throughout the year, the rollover adds up $100 each from January thru October, then the bill is subtracted. November and December add to the rollover again and the year end total comes out to $0 rollover, budget covered. Total expense $1200.

timandmelinda

@Tom Young Thanks for that explanation. While I understand it in theory, I'm not sure how I would do this in Quicken. I'm using the Windows version. Is this Deffered Expense/Income Account and actual account I create? Or is it another category that I simply don't include in the budget?

When I create an entry, where am I creating this entry? You say balance sheet but do you mean register? I guess I'm not understanding what exactly you're referring to, making it difficult for me to know what screen to even use. I'm super new to Quicken.

Thanks so much!

timandmelinda

@Tom Young After thinking more about it, I think I got it. Correct me if I'm wrong. It's basically doing a transfer into another account and then later categorizing that for the budget. So, I would create an Account named Deferred Expense. I would transfer the car maintenance charge into this account, and then in the next month, I would make an entry in this Account's register and categorize it for my budget. Is that correct?

Tom Young

@timandmelinda

Yes, you've got it figured out.  It's extra work and, in a way, it's "cheating."  That is, if you fixed the car in August, then you fixed the car in August, so showing it getting fixed in September just not accurate. That said, this process of deferral and subsequent recognition is a valid and correct way of accounting for very many items of income and expense and is commonly used. 

For example, many times you pay for stuff - property taxes, homeowners insurance and so forth - in one lump sum but the true "expense" stretches out over some amount of time, like 6 months or a year.  So the initial payment could go onto the balance sheet as some sort of "prepaid expense" asset and then get unwound over the period time it covers.  This same sort of deferral/later recognition can be used for income too.  In many professions money can be received not for work you've already done but as a deposit against work you are committed to perform in the future.  So in this case the initial accounting would be to deposit the money in the bank with an offset to a liability account, frequently called "deferred revenue."  As work is done and income is earned the liability account is reduced with the offset being to an actual "revenue" income line item.

The point is, the movement of cash into and out of your bank account is not necessarily the same as receiving "income" or incurring an "expense", so hanging some elements of "cash flow" onto the balance sheet for later recognition as income or expense is very common when you follow Generally Accepted Accounting Principles (GAAP).

The beauty of being the Chief Accounting Officer of your "enterprise" - e.g., your family - is that you're free to do your accounting however you see fit.  So, in our family's case I expense our property taxes and lump-sum homeowner's insurance payment when the cash flows out of the bank, even though that's not GAAP, and I used to be a CPA! 

timandmelinda

@Tom Young Thank you so much! This was very helpful and I'm sure it will help others with the same question!