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How to consider an annual fee on the budget?

Should an annual fee that is normally paid in full mid year (June) be divided into 12 ($300/month) to recognize expense monthly for budget purpose?


Len Green
Title: Performance Improvement Consultant and E..
Company: Haygarth Consulting LLC
LinkedIn Profile
(Performance Improvement Consultant and ERP Strategist, Haygarth Consulting LLC) |

Are you doing an accrual based budget or a cash flow?
If accrual, then I think forecast 1/12th each month.

James Scott
Title: Consulting CFO
Company: Early Growth Financial Services
LinkedIn Profile
(Consulting CFO, Early Growth Financial Services) |

If it is non refundable, it should be booked in full in the month incurred. Generally it is always better to do that, as it will help you forecast cash flow better and a non material ($300) charge is better booked in the month incurred.

Topic Expert
Jaime Campbell
Title: Chief Financial Officer
Company: Tier One Services, LLC
(Chief Financial Officer, Tier One Services, LLC) |

If the product or service is received throughout the year and just happens to be paid monthly, and if the purpose of the budget is for overall strategic planning and less for cash flow purposes, then spread it out.

Topic Expert
Alan Hart
Title: Consultant
Company: Pacific Shine Group
(Consultant, Pacific Shine Group) |

Generally, all budgets should be prepared under the accrual basis (unless your financial statements are prepared on the cash basis). So in this example you should spread the expense evenly to the 12 months. Ideally, you should have the ability to specify in the budget software how (and when) the payment should be made (think in terms of Vendor Payment Terms).

If your budget software can automatically generate a balance sheet and a statement of cash flows from the budget (and synchronized to the P&L) you will get your cash flow numbers in each budget period and all balance sheet account balances for the duration of the budget.

I highly recommend doing it this way since you will not have to approximate your cash flow, either high level or through a very complex model you build in a spreadsheet.

The example given here is immaterial to budget and cash projection results but is a good example how this type of transaction should be handled.

(Consultant) |

Thank you everyone for your inputs! This is for an accrual based budget so from your responses, I gathered this expense should be divided into 12 months. The timing of the payment is also taken into considering for cash flow purposes.

Much appreciated!

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