How to account for transactions which may have multiple causes?

Question

Say I have a transaction from my bank in a foreign currency (say a taxi) which causes me to incur a "foreign currency transaction fee" (e.g. 2% of the transaction).

One way to look at this cost is that it is part of the cost of the taxi. Another way is to say this is the cost of using my bank.

Which account should I assign this transaction to? How do I record information so that budgeting and decision making (should I change bank, should I get public transport more) are made easy (indeed possible!).

Answer 1

Post the total cost under the name of the taxi company, have the 2% reflected as a bank charge in a split entry, and add a 'job' or 'category' label called, say, "travel" to both parts (bank charge & fare).

• Taxicab & Co $51
  • Fare/Travel $50
  • Bank Charges/Travel $1

This way, you can review your bank charges by looking at its expense account; review the travel expenses by looking at the "travel" job/category; and even report by company name to look at costs related to the specific taxi company.

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Note I'm using MYOB's "Job" and "Category" terminology. These are separate fields that can be populated for each 'split' entry. Not all accounting packages have these fields. Here are some tips on how to work around that.

Add keywords as tags to the memo field for the split. Memo fields are free-text fields you can enter per split entry. They are separate from the 'description' field used for the collective entry. Using the same example:

• Taxicab & Co $51 (Description: taxi fare from the airport to the hotel)
  • Fare $50 (Memo: Travel)
  • Bank Charges $1 (Memo: Travel)

To get a report for all Travel expenses, restrict the search to Memo fields containing the word "Travel". Depending on how disciplined you are about Memo entries, you might have to pick out spurious entries.

Another method is to create a virtual bank account called Travel, and 'pay' for the expense through that account, then 'reimburse' it from the actual bank account (credit: Derek_6424246):

• Taxicab & Co $51 (Booked to the 'Travel' bank account)

  • Fare $50
  • Bank Charges $1

• Payment $51 (Booked to the actual bank account)

  • Travel $51

With this method, you'll need to be careful about tax coding so that you only account for tax once rather than twice for the same 'real' transaction.