Accounting for monthly transfers to fund large, periodical bills throughout the year

With regards to tracking/reporting cash flow ins and out with Tiller. I set aside $XX dollars every month to pay for larger bills that come due only periodically throughout the year. I code this monthly transaction as a transfer from one account into another (e.g.checking into a dedicated savings acct)… then when the bills come due, I know the amount is “waiting” for me in the separate account. I’m struggling with how to use Tiller in this situation and think monitoring cash flow ins and outs throughout the month may help rather than just “expenses” and “income.” Anyone else have a way of thinking about this that keep the fidelity of monthly budgeting intact? Thanks all…

@portwood143

Here is a thought. Lets say your auto insurance is due every six months and the bill is $600. So, you move $100 per month from your checking account to your dedicated savings account. You can create two new categories to track this movement of funds. When you move the $100 per month out of your checking account, code that transaction to a category called “Transfer Out - Auto Insurance”. Use Transfer as the Type. When the $100 comes into the dedicated savings account, code that transaction to a category called “Transfer In - Auto Insurance”. Use Transfer as the Type. When you pay the $600 auto insurance bill, code that transaction to a category called “Auto Insurance”. Use Expense as the Type. When you pay the auto insurance bill, make a transaction of $600 to both the Transfer Out - Auto Insurance account and the Transfer In - Auto Insurance account which will bring the balance in those two accounts back to zero. Using these Transfer Out and Transfer In accounts allows you to check these accounts at any time to see how much you have accumulated towards your total Auto Insurance bill. When you pay the bill, you need to remember to zero out the Transfer Out and Transfer In accounts.

Lets say you are transferring $100 a month because you think the bill will be $600. Lets say the actual bill is $590, or maybe $610. Of course you will pay the $590 or $610 but in both cases the entry to zero out the Transfer Out and Transfer In accounts would still be $600 because that is the amount needed to zero out these two accounts because you need to be at zero when you start the next six month cycle.

You can do this same process for another bill by setting up another Transfer Out and Transfer In account for that bill. Lets say you want to do this process for 10 bills. You would have 10 Transfer In accounts. At any time, you can look at the amount in these 10 Transfer In accounts and this will provide a breakdown by bill of the total amount sitting in your dedicated savings account. You just need to remember whenever you pay the bill, you need to make an entry to bring those two accounts back to zero.

Please let me know if you have any questions.

Blake

2 Likes

Thank, Blake… I really appreciate you taking the time to think through and respond so descriptively.

The question I have then, though, is how is this reflected in my monthly spending… It’s not coded as a monthly expense every month, so it looks like I am under budget in terms of spending when in reality, to use your example, the monthly $100 has be “spent,” so to speak, in that it is accounted for as a future expense.

I’m trying to use this tool as a monthly budgeting tool and see how far over or under I come in each month in the way of spending.

Thanks again…
MP

@portwood143

I do not budget so I have not used any of Tiller’s budgeting tools.

Here is a thought. Do what I mentioned in my initial reply. Add the following. The budget for Month 1 through Month 5 is zero for each month. The actual expense (or amount paid out) for these five months is zero so you are on budget for each of these five months and thus you will look like a superstar. Good job. The budget for Month 6 is $600. If you pay/expense $590 in Month 6, then you are under budget by $10. If you pay/expense $610 in Month 6, then you are over budget by $10. You will likely not be a superstar in Month 6.

I think this will work.

Cheers,

Blake

@portwood143,

Here’s a recommend workflow for this in the Foundation template. Let me know if it fits what you’re trying to do.

  1. Create a special category for your annual expense savings like “Property Tax Savings" and then the actual expense category for "Property Tax” (so two categories for this that are both expense type categories)
  2. Set the budget for “Property Tax Savings” to the monthly amount that you’d need to set aside to accumulate the total
  3. At the end of each month look at your actual cash flow (top left) in the Monthly Budget sheet. If you have enough for the monthly amount for “Property Tax Savings" manually add a transaction to the Transactions sheet for that amount as a negative. (-$59). This is your virtual “savings” for that category. Or if you’re transferring money to a savings account you can just categorize the outflow using this category. If you see the inflow because you have the savings account connected to your Transactions sheet too you would categorize this using a hidden income category or a transfer category.
  4. On the Yearly Budget sheet in the annual totals section (columns B, C, D) you’ll see the total budget for the year (that should be the total amount), the actual (how much you’ve saved so far with those manual transactions), and how much is remaining that you still need to save.
  5. When it comes time to actually spend that money for the Property Tax and you write a check for example that transaction would be the “Property Tax” category.
  6. Finally, add a manual transaction that’s a positive amount for the total cost and categorize it as “Property Tax Savings” to net out the other Property Tax Savings transactions so it doesn’t appear as though you spent double on Property Tax.

@heather @portwood143

If I understand Heather’s post, you will have an expense every month and then you will kind of fix things in the month of payment.

I assume all Tiller customers are using the cash basis method of accounting which says you record income when you receive cash and you record expense when you pay out cash.

Lets assume that the actual property tax payment for the year is $1,200 and is made on 12-31-XX, assume that property tax is the only expense for the year, assume there is no income for the year, assume that the checking account balance at 01-01-XX is $2,000, assume that the savings account balance at 01-01-XX is zero, and assume you move $100 a month from the checking account to the savings account. Heather is expensing $100 a month for 12 months to Property Tax Savings and then in December is making a manual entry of -$1,200 to zero out this category while making a $1,200 entry to Property Tax to reflect the actual payment being made. At 12-31-XX, the checking account balance is $800 while the savings account balance is $1,200. The $1,200 payment is made out of the savings account. Using this approach, your monthly P&L for each of the 12 months is -$100, while your yearly P&L is -$1,200. The cash basis method of accounting would dictate that your P&L for the 11 months of January through November would be zero while December would be -$1,200. The expense should not be made until the cash is paid out.

Heather is using the accrual basis method of accounting which says you record income when earned and record expense when incurred. Most individuals and small businesses use cash basis because it is easier while big corporations use accrual basis. When using cash basis, you should use it for all transactions. Do not mix and match.

With all that said, you can do whatever you want to but it is important to understand what you are actually doing. If your accounting is not clean, then giving it to your accountant to use in preparing your tax return will require adjustments to make it clean.

Take away - understand each transaction to be sure it is correctly accounted for.

Cheers,

Blake

Thanks @Blake. I don’t have an accounting background so didn’t realize my recommendation was mixing approaches here :wink:

Just came up with something on the fly that meets a need within the boundaries of the Foundation template and is somewhat simple to understand.