When preparing a budget do you put the expenditure in the month you are going to spend the money or the month the accountants are going record the expense. For example, your property taxes are due in September, but that payment is for the six month period from October 1 to March 31.
Let’s work with some easy numbers, let’s say you paid $6,000 in property taxes on September 30. The accountants will take the $6,000 expenditure and divide it by 6 and then expense $1,000 as property taxes, each month from October to March. If your budget shows $6,000 being an expense in September, then you are going to be explaining why you are under budget, every time you look at the budget. The answer is align your budget with your financial reporting. Either, budget and expense the property tax as an expense when you pay it in September, or prepare the budget with a monthly expense. What about other prepaids?
If you book a plane ticket now in November for a trip you are taking in December, the expenditure will show as a prepaid in November. Your travel expense will not show that any amount has been spent until December when you take the trip. How will you make sure you do not exceed your travel budget, if you are purchasing a trip ahead of the time you are traveling? Budgets are very useful for planning and monitoring results, but in order for the budget to help you and not take up a lot of time with analysis, the budget needs to be prepared using the accounting procedures which are used for the actual results.
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