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Question From Reader: When Do You Record an Expense?

This article was written by in Software. 13 comments.

“Stat Crazy” wrote in to ask a few questions about recording personal finances in Quicken. His first question is about recording expenses.

If you purchase something during the month one June 15 with a VISA card, then submit an online payment on June 28, and the card says it is paid off on June 30 but it does not pull the cash from your bank account until July 3, then which month do you apply the expense? In my balance statement I am lazy and just say I have no balance AND the money is still in the bank account since I strictly take data from my online statements and reported transaction dates.

I track my finances using a hybrid accrual method. That means that I take most expenses and income on the day they occur, not the day I receive or withdraw the associated cash. You’re free to use whatever method makes the most sense to you, but this is how I do it.

On June 15 you experienced an expense in the form of a purchase using your credit card. If your purchase was, for example, a birthday gift, you would record the category as Gifts Given (an expense category in Quicken). On June 28 and June 30, you wouldn’t record anything in order to reflect your true savings account balance for the end of the month.

Even though your credit card’s website shows that your payment was applied on June 30, I would prefer keeping the cash recorded in your savings account until your bank debits your account. Therefore, on July 3, record a transfer in Quicken from your savings account to your credit card account. In your savings account, you would record the description as something like “Credit Card Payment” with the category as [VISA Credit Card] — the name of your credit card account in Quicken. A category in brackets denotes a transfer of money, not an expense.

Using this hybrid accrual technique, your income statement will reflect your Gifts Given expense in June while your balance sheet will reflect your proper June account balances (with accuracy in the savings account taking precedence over the credit card account). Your expense should come when you make a purchase, not necessarily when your bank account is affected.

The cash flow report is used less often. If you paid your credit card from your active checking account, and if your checking account is properly configured as a cash flow account for that report, then it would reflect an outflow in July when you transferred money to your credit card. This might be different if you paid the card from a savings account, as savings are generally not cash flow accounts.

If you use Microsoft Money or any other financial tracking program, the concept is the same but some of the details in terms of category names may be slightly different.

This is the method I use because it makes the most sense to me. The beauty about personal finance is that you don’t have the SEC knocking on your door asking for accurate reports nor must you follow Generally Accepted Accounting Principles.

Published or updated July 9, 2008.

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About the author

Luke Landes is the founder of Consumerism Commentary. He has been blogging and writing for the internet since 1995 and has been building online communities since 1991. Find out more about Luke Landes and follow him on Twitter. View all articles by .

{ 5 comments… read them below or add one }

avatar 1 Anonymous

Of course if you wanted to be technically correct, you would record the expense whenever you realized the expense; mainly when you swipe your card at the store. Now since you don’t pay off your balance until the end of the month which is where bank reconciliations would come into play, but when dealing with personal finances there is no need to be that accurate unless you really want to. I simply record expenses when I realize them and record revenues when I receive them. I would say don’t worry to much about reconciling to ensure your account balances are correct as long as you know where all the money has gone. It the end you should have accurate revenues and expenses matched up from month to month as long as you record the expense as soon as you get home. A simple excel sheet can do wonders for ones finances as well.

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avatar 2 Anonymous

Was it just me or did that sound really complicated? I guess this is for the hardcore crowd.

I use Quicken and I update my transactions every day. I enter the actual dates that transactions occur and I use the appropriate account that the transaction came from. Then I run spending reports weekly or monthly. I thought I was being a bit anal, but maybe that is the simpletons approach. :)

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avatar 3 Luke Landes

I don’t think it’s all that complicated. I added a lot of details, but it comes down to this:

1. Recording an expense when you buy something with a credit card.
2. Recording a transfer (no effect to income/expense) when you pay the credit card.

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avatar 4 Anonymous

I think you nailed it — This is a question of expense vs. cashflow.

I would “recognize the expense when it was incurred” (at the point of sale – when the card was swiped). But I suppose the expense may not actually be incurred, in the this case, until the gift is actually given. With a receipt, you could presumably return the gift at any time before its given.

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avatar 5 Anonymous

I like this issue a lot, because it made me recognize there really is no “right” way to track expenses. The “right” way to keep track of stuffs depends on how precise you want the data and more importantly, what you want to use the summaries for.

If you input every piece of financial data starting from January 1 of a year, you can actually track to the penny where your money is going. I can say this because that is what I do. I do this since I’m a numbers freak, so I feel happy when my company annual tax summary matches my records of taxes paid.

If you are slightly less detailed, and instead make sure to input every purchase over $1.00, then you will still really have good sense of where your money is going. You can figure out that your expensive car is taking up lots of money through maintenance, or that you may be renting a place that’s too expensive for you.

The real purpose of any expense tracker is to help you make better decisions. When you know where your money is going, you can then make decisions on how to improve your situation. When I started tracking my expenses, one of the first things I learned was that I spent way too much eating out, so I started cooking at home a lot more.

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