Now that I explained why accrual-based accounting has its value even for individuals, let me share how I practice it in Microsoft Money. Believe me, it is actually easier than you thought, and the same can be performed if you use Quicken to manage your books.
for illustration purposes, let's continue to use the property tax example I described in the last post: I will need to pay $1,800 on April 30 for my property tax in the first half of 2005. I want to apply accrual-based accounting so in my monthly expense report, I can see a monthly charge of about $283.
The solution is simple:
1. Set up a cash account in the Microsoft Money or Quicken called "Installment."
2. In this "Installment" account, add six transactions for a total of $1,800:
1/1/2005 $300 (as "property tax")
2/1/2005 $300 (as "property tax")
3/1/2005 $300 (as "property tax")
4/1/2005 $300 (as "property tax")
5/1/2005 $300 (as "property tax")
6/1/2005 $300 (as "property tax")
3. Assuming you will pay your property tax from your checking account, add the following transaction to your checking account:
4/30/2005 $1,800 (as "Transfer to Installment Account")
You are all set. By adopting this approach, you will see the following desirable outcome:
1. In your monthly expense report, you will pay out $300 every month for property tax -- this is fair accounting for the same reason I explained last time.
2. In your net worth report, you will see the net effect of the property tax is $300 a month, instead of $1,800 for one particular month and $0 for the other five months if you adopt cash-based accounting.
3. You didn't disturb your checking account record by using the above method -- your Microsoft Money file still reflects the actual transactions in your checking account.
Isn't it simple?