Page 156 - Budgeting for Managers

Tracking Your Budget
the accounting system, money is allocated from the bank
account to accounts payable.
2. Receiving the item. This includes either picking up the
item or receiving a delivery or shipment. It also includes
checking to make sure that the shipment is correct and 139
that the items are not damaged. The packing list from the
shipment is marked “received.”
3. Approving payment. The packing list and invoice are
brought together and checked. The account codes for the
line item(s) are marked. The check can now be prepared.
4. Making payment. The check is prepared (often this is
called cutting the check) and sent to the vendor. In the
accounting records, money is moved from accounts
payable to the appropriate expense category or categories.
If you pay by credit card, then the decision to buy also
includes a transfer of funds from the expense account to the
credit card account. Receiving and shipping are the same as
with a purchase order. Payment is made to the credit card
account rather than directly to the vendor.
Each day, you can identify the status of each purchase. If
you add up all the current expenses, then you can find the status
of each account for each line item. At any moment, the total
amount you budgeted for the period equals the amount paid to
vendors plus the amount committed by purchase decisions and
the unused amount still available for future purchases. If you lose
track of your purchases, then you won’t be able to do this and
you won’t know how much money is still available to spend.
For example, let’s say that we have a budget of $1,000 for
the year for computer software. Earlier in the year, we spent
$350. At the beginning of the month, we ordered one item for
$100, and it has not arrived yet. We also went to a store and
purchased an item for $75 on a credit card. The credit card bill
has not yet arrived, but we have the receipt and we’ve approved
the purchase.
The status of the computer software expense account is
shown in Table 9-2. As you can see, the funds available for pur-