Page 155 - Budgeting for Managers

Budgeting for Managers
138
Acct.
$500
Debit
Credit Checking Expense Category
Marketing
$300
Credit $150 Shipping
Credit $50 General
Total $500 $500
Table 9-1. Splitting expenses
The Purchasing Process
A few years ago, almost all business purchase orders over $100
were arranged through approved purchase orders, with pay-
ment after delivery. Small purchase orders used a petty cash
fund. However, with the advent of business credit cards and
online ordering, a lot of business purchases are now by credit
card. This is very convenient and it saves time. However, you
can’t allow a change in the way you send money to your ven-
dors to open the door to poor accounting practices or poor
budgetary tracking. You should be sure to allocate money from
the appropriate expense line items each time you authorize a
purchase. Trying to remember what a purchase was for later—
at the end of the month, the quarter, or the year—leads to inac-
curate records. And if our records are not accurate this year,
we’ll have difficulty planning next year.
When we track a budget, what we’re really tracking, at a
detailed level, is transactions. Each transaction moves money
from one account to another within our budget. At the same
time, each transaction is an agreement, sometimes a legal con-
tract. Here are the transactions that occur with each purchase if
we use a purchase order.
1. Decision to buy. This includes allocating funds from
expense line items to the purchase and preparing a pur-
chase order. It may include a contract with the vendor. In