Page 157 - Budgeting for Managers

Budgeting for Managers
140
Committed
Note
Available
Budgeted
Spent
Allocated for year
$1,000
$350
Spent in prior period
Hardware on order
$100
(Inv. # 124356)
Software purchase
$75
(credit card 7890)
Budgeted
$475
Less Spent + Committed
Table 9-2. Expense account status
chases for the remainder of the year equal the allocated funds
less what has already been spent or committed.
When we commit to making an expense, we call that accru-
ing the expense; and tracking expenses when commitments are
made is accrual accounting, as mentioned in Chapter 2. If we
track expenses only when we actually pay the money, that’s
cash accounting.
Businesses are much better off using accrual accounting.
Otherwise, managers may overspend their budgets before they
know they’ve committed to spend the money, especially when
several people are allowed to charge expenses to the account.
Each year, the accounting
department prepares the
Cash basis Accounting
figures for taxes and
system in which financial
transactions are tracked reports to the IRS based
when money is actually spent or on either accrual account-
received. ing or cash accounting.
Accrual basis Accounting system in But, whether the company
which financial transactions are reports to the IRS on a
tracked when commitments are cash or accrual basis, you
made. Income is tracked when a should track your depart-
client is billed and expenses are ment’s income and
tracked when a purchase order is expenses on an accrual
approved or a charge card is used.
basis.