Using the Budget Features in Quicken 2003 Quicken budgets can be used to summarize expected income and expenses for planning purposes. The budget can later be used in comparisons to actual income and expenses to determine whether expectations are being met. If expenses are "over budget", measures can be taken to rein in costs before financial problems are out of control. In this "hands on" session we will use a previously developed file of records for the London farm to practice generating budgets. You will be able to practice many of the steps that you might use in summarizing your own records. Using these instructions, you will: Develop a whole farm budget for 2003 based on 2002 transactions. Compare actual records to the budgeted amounts. Choose File Open Look in: [A:] (or C:\Workshop Files if you followed earlier instructions to copy the diskette to the hard drive) File name: LOND03 OK To access the budget features in the file, choose: Planning Budget Automatic (if you don t get this prompt, click on the Setup tab at upper left corner of the budget window) Click on Create Budget (note: if this is the first time a budget has been created in the file, you will not have the opportunity to name it; otherwise the prompt for name as shown in the screen that follows will appear): 1
Complete the screen as above. This will base the budget for the coming year on the transactions entered for the most recent full year of data, 2001, maintaining the same monthly pattern for income and expenses. Since the amounts are not likely to be exactly the same, we chose to round the values to the nearest $10 for planning purposes. Click on OK OK A budget screen will be opened that contains a summary budget on the left side and a window to allow you to change the monthly amounts at the right. (If the Show category groups box is checked, click off the check mark to eliminate the discretionary/non-discretionary labels and sorting.) The budget summary lists categories down the left side (much like the cash flow statement) with income items shown. The budget amount for a given time period (for example, $1,850 this month for Salary) are given. To view the annual total rather than the quarterly total, choose yearly from the Totals menu at the bottom of the screen. 2
At the right of the screen, you can change the monthly amount for the item that is selected at the left (here, Government Payments): Let's say that the Londons have a few items that they expect to be significantly different this year and want to edit those amounts: 1. Government payments are currently budgeted for March. The Londons expect government payments to be split between March and December so they want to budget government payments at $1,100 in March and $2,000 in December. Highlight Government Payments, click on the appropriate month, enter the new numbers and click on Apply (button at top right of column). Note that the totals are automatically updated. 2. Jack has taken a part time job and expects to earn $1000 each month. The job that Julie took in April of last year is year-round so her monthly salary needs to be added to January, February, and March. Their salaries combined are $2,850 per month. Move the cursor to the Salary row at the bottom of the Income section, then update the amount to 2,850 in each month and click on Apply. Now, click on the Expenses tab at the top left of the screen. 3
3. Jack and Julie underestimated fuel expenses last year so, to be on the safe side, they want to budget even more for fuel expenses in the coming year. Click on the Gas, Fuel, & Oil line. For January and February, the amount should be $130. Other fuel expense entries should be: March, 210; April, 120; May, 60; June, 3350; July, 2280; August, 560; September, 910; October, 60; November, 60 and December, 100. Enter these numbers in the appropriate cells. Continue to edit items in the budget to reflect your planning assumptions for the year. Make the changes to each category line, clicking on Apply after the monthly detail is updated. Click on the Summary tab at the top left of the Budget window. You ll now see a summary of your anticipated income and expenses for the coming year by month. The note at the top alerts us that we may have to use savings or draw on a line of credit to cover expenses in some months this coming year. Note: If you have a printer, you can print the budget by clicking on Print in the budget window. Once you have created and saved a personal monthly budget, it can be used in a comparison with year-to-date income and expenses. (At home, you must develop a 4
budget in your file before you can compare it to your actual transactions.) Choose: Reports (from the Budgeting menu line) Monthly Budget (Or from the main menu line, choose Reports, Cash Flow, Monthly Budget.) From the pull down menu at the top of the page select: Date Range Custom Date Custom Date from: 1/1/2003 to: 2/28/2003 Click on OK This report can be used to see whether expected income and expenses are being realized. Scroll through the report to compare actual income (inflows) and expenses (outflows) to budgeted amounts by studying the Difference column. If income is below budget or expenses are above budget, changes in management may be needed to avoid financial problems. To look at a graphical presentation of budget variances, click on the Graph tab at the top right of the report. The blue bars above the zero line shows favorable variances (net income is higher than expected, because cash inflows are above budgeted amounts or cash expenses are below budgeted amounts). Point at one of the bars and you ll see that a magnifying glass appears, meaning you can zoom in on the transactions that support the graph. Double click on the bar and you ll get a report listing the transactions for the month. To return to the original graph, select it from the Sub-Reports sidebar. Click on the X in the upper right corner to exit. 5