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<chapter id="chapter_budgets">
  <title>Budgets</title>

  <para>This chapter explains how to create and use budgets with &app;.
  </para>

  <sect1 id="budget_concepts1">
    <title>Basic Concepts</title>

    <para>A budget is a tool for estimating expected income and expenses. You can use it to help you plan how
      you intend for your finances to change over a period of time, and to examine how your actual
      financial transactions for the period compare to your planned transactions.
    </para>

    <para>The budgeting concept is quite general, so &app; offers a budgeting tool that is both simple and
      flexible. You, the user, have to decide how complex or simple you want to make your budget.
      This guide will help you make some of those decisions.
    </para>

    <sect2 id="budget_conceptsterms2">
      <title>Terminology</title>

      <para>There are a few helpful terms listed below that will be used to discuss budgeting.
      </para>

      <itemizedlist>
        <listitem>
          <para><emphasis>Budget</emphasis> - A financial plan describing the expected revenues and/or disbursements
            for a particular time period
          </para>
        </listitem>

        <listitem>
          <para><emphasis>Cash Budget</emphasis> - A budget planning for expected cash receipts and cash
            disbursements. This type of budget tracks cash flow -- where your money comes from,
            where it goes, and, of course, how much.
          </para>
        </listitem>

        <listitem>
          <para><emphasis>Expense Budget</emphasis> - A budget chiefly for planning what you spend your money on.
            This type of budget tracks your expenses. It is typically not concerned with things like
            appreciation or repayment of liabilities. However, it would account for interest
            charges. For example, if you buy $100 worth of groceries with your credit card, you
            incur an $100 expense for groceries, and a $100 liability to your credit card company.
            When you pay the credit card bill for $110, you are incurring an additional interest
            expense of $10. An expense budget plans for the transaction of buying the groceries and
            paying the interest, but not the transaction of repaying the credit card company.
          </para>
        </listitem>

        <listitem>
          <para><emphasis>Capital Budget</emphasis> - A budget that describes a plan for paying for a large future
            expense, often through a combination of saving and borrowing money. Note: Capital
            budgets can sometimes get quite complex because they can try to answer the question "Can
            we afford to do such-and-such?" by exploring various hypothetical scenarios that can
            involve hypothetical accounts.
          </para>
        </listitem>

        <listitem>
          <para><emphasis>Budget Period</emphasis> - The period of time during which the plan is expected to take
            place. The most common budget periods are annual and monthly. Sometimes, you may budget
            for several consecutive periods at once, for convenience or for finer-grained planning.
            For example, an annual budget may include 12 monthly budget periods.
          </para>
        </listitem>
      </itemizedlist>
    </sect2>
  </sect1>

  <sect1 id="budget_creation1">
    <title>Creating a Budget</title>

    <para>Even before you begin to make a budget, it&rsquo;s important to have given some thought to your
      account hierarchy. For example, if you want to budget a certain amount for your electric bill
      and a certain amount for your water bill, you can&rsquo;t have only an
      <emphasis>Expenses:Utilities</emphasis> account. Your accounts must be at least as specific as
      your budget.
    </para>

    <sect2 id="budget_creation2">
      <title>Choose Which Accounts To Budget For</title>

      <para>The first step in creating a budget is to decide what it is you want to plan for. This decision will
        affect which accounts you include in your budget. For example, if you are only interested in
        tracking your expenses, you may create an expense budget by only entering amounts for
        expense accounts. On the other hand, if you want to track all of your cash flow, you may
        create a cash flow budget by entering amounts for asset, liability, income and expense
        accounts.
      </para>

      <para>Before you begin to create your budget, you need to make two decisions: What accounts do I want to
        budget for? and When do I want my budget to be for? You can always change your mind later,
        after you&rsquo;ve created a budget, but you need to start with something.
      </para>

      <tip>
        <para>As a rule of thumb, if you mostly care about <emphasis>what</emphasis> you spend your money on, you
          may want to make an expense report. If you&rsquo;re also concerned about having enough
          money in the right places at the right times, you may want to use a cash-flow budget.
        </para>
      </tip>
    </sect2>

    <sect2>
      <title>Choosing a Budget Period</title>

      <para>Before creating a budget you must also decide what period of time you want to plan for. The most
        common budget periods are monthly and annual. If you want your budget to plan for changes in
        financial patterns over time, then you should include multiple budget periods in your
        budget. For example, if you want to plan on having higher utility expenses in the winter
        than in the summer, then you might break your annual budget into 4 quarters or even 12
        months, and budget a higher value for the winter periods than for the summer periods.
      </para>
    </sect2>

    <sect2>
      <title>Getting Started</title>

      <para>To create your first budget click on
        <menuchoice>
          <guimenu>Actions</guimenu> <guisubmenu>Budget</guisubmenu><guimenuitem>New
          Budget</guimenuitem>
        </menuchoice>
        . You will immediately see a new budget with the default settings and no entries. Then click
        on the <guibutton>Options</guibutton> button. The most important options are the budget
        period and the number of periods. For the budget period, choose the beginning date and the
        smallest period of time that you want to plan for. Then, for the number of periods, choose
        how many periods you want to plan for.
      </para>

      <para>The budget page now shows a list of accounts with a column for each budget period. The date shown in
        the title of each column is the beginning of that budget period.
      </para>
    </sect2>

    <sect2>
      <title>Entering Budget Values</title>

      <para>Now, you must enter the budget values - the amounts that you expect the account balances to change
        during the budget period. There are two ways to enter budget values. The first way is to
        simply click on the cell and enter an amount.
      </para>

      <para>If you have past transactions recorded in &app;, the second way is to let &app; estimate the budget
        values by looking at those transactions. First, select the accounts you want &app; to
        estimate. Then click on the <guibutton>Estimate</guibutton> <emphasis>Toolbar</emphasis>
        button. In the <guilabel>Estimate Budget Values</guilabel> dialog, select the date past
        which &app; should look for past transactions. &app; will start at that date and look
        forward for the duration of your budget. For example, if you are making an annual budget,
        and you select Jan. 1, 2005, &app; will look at all the transactions in that account from
        Jan. 1, 2005 through Dec. 31, 2005.
      </para>
    </sect2>
  </sect1>

  <sect1 id="budget_reporting1">
    <title>Budget Reporting</title>

    <para>You&rsquo;ve already done the hardest part - creating your budget. But now you want to know how your
      actual financial transactions compare to your plan. You need to run the Budget Report.
    </para>

    <para>Click on
      <menuchoice>
        <guimenu>Reports</guimenu><guisubmenu>Budget</guisubmenu> <guimenuitem>Budget
        Report</guimenuitem>
      </menuchoice>
      . For each account, the Budget Report will show the budgeted and the actual amounts in two
      adjacent columns for each period in the budget. If you have created multiple budgets, you can
      use the Budget Report Options to select which budget to use in the report.
    </para>

    <para>Two other types of budget reports are commonly used in the small business setting. They are the
      <emphasis>Budgeted Income Statement</emphasis> and the <emphasis>Budgeted Balance
      Sheet</emphasis>.
    </para>

    <sect2>
      <title>Budgeted Income Statement</title>

      <para>The budgeted income statement is similar to the income statement. Both show the revenues and
        expenses for a given period as well as the profit, which is the difference revenue -
        expenses. The income statement is based on historical data, but the
        <emphasis>budgeted</emphasis> income statement is based on the predictions made in the
        budget.
      </para>
    </sect2>

    <sect2>
      <title>Budgeted Balance Sheet</title>

      <para>The budgeted balance sheet is similar to the balance sheet. Both show the assets, liabilities, and
        equity. The difference is that the balance sheet is based on historical data, and the
        <emphasis>budgeted</emphasis> balance sheet is based on the predictions made in the budget.  For more details, see <ulink url="&url-docs-C;manual/report-classes.html#report-budget"><quote>Budget Reports</quote> in the manual</ulink>
      </para>
    </sect2>
  </sect1>
</chapter>
