I am trying to put my personal finances in order and I figured that accrual accounting fits my needs for keeping a better track of my records. I am new to accrual accounting and while I think that I understand the concept, I have some questions when it come to practice in my personal finances.
In my country, every June we learn how much we have to pay for property tax for the running year. If I learned in June (2018) that I have to pay $12,000 for the year 2018 then I paid it immediately.
When I look at my records in later years, it makes more sense to see this $12,000 tax obligation as a monthly $1,000 expense throughout 2018 rather than a sudden $12,000 expense in June of 2018 (as it would appear if I keep a cash-based workflow).
However, I'm not sure how I would configure this using accrual accounting. I am guessing the following:
- I create an asset account "Assets:Prepaid property tax" and an expense account "Expenses:Property tax"
- In June 2018 in my book I credit my "Assets:bank account" with $12,000 and I debit my "Assets:Prepaid property tax" with $12,000
- For every month of 2018, I credit $1,000 in "Assets:Prepaid property tax" and I debit $1,000 my "Expenses:Property tax"
Is that a proper solution using accrual book keeping? When it comes to taxes, intuitively I would expect that I should have some liability account somewhere. Is this the case? If so, what would be a better way of doing all this?