Tuesday, May 6, 2014

Why Use Twin End Balances?

Unlike most free home budgets, Pagemonth budgets and templates all have twin End Balances in bold type at the bottom of each month's page, in columns D and J.  Why?

The twin amounts are given to the penny and should agree to the penny before moving on to following months.  Agreement indicates the twin processes of cash flow on the left and budget category grouping on the right have successfully mirrored each other's quantity information (income and expenses).

Agreement does not, however, mean that the month's data is correct--merely that it has been processed in time and in category correctly.  The page could be completely wrong, if, for instance, it was based on the wrong number of weeks, or paydays, in that month.  Most months of the year have four weeks, but a few (January, May, and August in 2014)  have five.  And depending of whether paychecks are issued weekly or biweekly, and on what weekday,, there might be three paydays in a month with five weeks or only two.

That is why it is essential when setting up the year's budget to do so with a good, legible calendar in hand that shows the entire year, as is found on the back of most checkbook registers.  Begin your budget by copying January throughout, the year, but modify it to the correct number of weeks and paydays in each subsequent month.  Seasonal work such as teaching may or may not have summer paydays, for example, or such summer checks may be of amounts different from those of the regular school year.

Whatever the user's job or pay schedule, getting each month set up based on the correct number of weeks and paydays is essential as a starting point.

Then comes the month by month adjustments for error, which won't be possible until projected income and expenses become actual amounts, day by day.  I prefer to base my estimates on whole dollar amounts, because actual amounts usually have cents after the decimal.  The whole dollar projected figures, therefore, tend to stand out to the eye till they are finalized.

But whatever future or present numbers are entered, let's assume that the twin balances at the bottom do not agree for some reason.  What to do then?  If your eye can't spot the error either in cash flow or category sides, subtract either twin end balance from the other to find the amount of the error you are looking for.

Often that error amount will suggest where to focus your attention and make correction easy.  Sometimes, however, even knowing the amount of the error isn't easy to track down.  For example, if you have a total amount in a given month scheduled for groceries on the budget side, but broken down into weekly days of distribution on the cash flow side, it may be that one or more weekly grocery day amounts are off in cash flow, and each must be checked--even totaled if necessary.

If the twin balances do not agree in a given month, first note whether the next month's twin balances are also in disagreement.  If so, the original month the error is showing up is on the budget, right side,  If, however, only the original month's twin balances differ but later months are again in agreement, then the error is probably on the left, cash flow side.  This is so because the Beginning Balance of each month (column J) is taken from and repeats the  End Balance (also column J) of all months after January, which is the only Beginning Balance entered manually.  Mistakes in column J are therefore carried forward from month to month till corrected.  But not mistakes in column D, the cash flow's side.  Realizing this can focus the user's search for errors on one side or the other.

Keeping the twin end balances in agreement, then, is a necessary but not sufficient guarantee of accuracy in any given month's page.  But it can serve to focus the user's attention where it is needed.