---
title: "Closing the expense side: department spend, budget and burn"
description: "The expense close checklist, spend by department as a dimension against the budget, and net burn with the one-offs named, on Northwind's Q4."
canonical: "https://lopifi.com/learn/expense-close-and-spend-analytics"
---

# Closing the expense side: department spend, budget and burn

> The expense close checklist, spend by department as a dimension against the budget, and net burn with the one-offs named, on Northwind's Q4.

Source: https://lopifi.com/learn/expense-close-and-spend-analytics
Part of: Lopifi — Planned: US GAAP books on autopilot, checked by a CPA (https://lopifi.com)

---

**How do you close the expense side each month and read spend by department against budget?** The expense close checklist, spend by department as a dimension against the budget, and net burn with the one-offs named, on Northwind's Q4.

Everything so far puts a cost in the right month with the right proof. The last job is to look at it. Once a month the expense side of the close has to answer three questions: is everything booked and coded, where did the money go by department, and what did the quarter burn? Northwind's Q4 is the example.

1. **Clear the feed.** Every card line matched to a receipt and coded; the feed has no unreviewed lines left.
2. **Book the reimbursements.** Reports submitted by the deadline are approved and booked; late ones are estimated.
3. **Cut off.** Unbooked costs incurred in the month are accrued; costs booked early are moved out.
4. **Release the prepaids.** Contracts and insurance released; the prepaid account ties to its schedules.
5. **Review capitalization.** Anything at or over the threshold is on the asset register, with freight in its cost.
6. **Tie the payables.** Credit card payable agrees to the statement, reimbursements payable to the unpaid reports.
7. **Assign every line.** No spend left without a department.
8. **Review the variances.** Actual against budget, with a written reason for the lines that moved.

The expense side of a month-end close.

## A department is a dimension

A department or team that incurs costs and earns no revenue of its own is a [cost center](https://lopifi.com/md/glossary/cost-center). In the books it is a [Dimension](https://lopifi.com/md/glossary/dimension) on each line, not another set of accounts: the account says what was bought (software, travel), the dimension says who it was for. The same hosting charge can be Operations in October and Sales in November without touching the chart of accounts.

Q4's spend came through three doors: vendor bills, the company card and reimbursements. By department it totals $44,275, of which $15,585 was on the card. $1,275 of it has no department.

| Department | Budget | Actual | Over (under) budget | Percent of budget | Explain? |
| --- | --- | --- | --- | --- | --- |
| Operations | 18,000.00 | 19,240.00 | 1,240.00 | 7% | No |
| Sales and marketing | 9,000.00 | 7,350.00 | (1,650.00) | -18% | Yes |
| Administration | 6,500.00 | 6,380.00 | (120.00) | -2% | No |
| Software | 4,800.00 | 5,620.00 | 820.00 | 17% | Yes |
| Travel and meals | 3,000.00 | 4,410.00 | 1,410.00 | 47% | Yes |
| Unassigned | 0.00 | 1,275.00 | 1,275.00 | n/a | Yes |
| Total | 41,300.00 | 44,275.00 | 2,975.00 |  |  |

Q4 spend by department against the founders' budget (an assumption). Over budget is positive.

A line needs a written explanation only when it moves by at least $500 and at least 10% of its budget. A large line that moved a little and a small line that moved a lot are both left alone, and a line with no budget is flagged on the amount, because unbudgeted spend is what the review is for. [The variance lesson](https://lopifi.com/md/learn/budget-vs-actual-variance-analysis) builds the full report; the rule is the same. A cost above its budget is unfavorable, which is why the sign of the variance is arithmetic and the label is a judgment.

> **Tip.** Treat "Unassigned" as a defect, not a department. It is the first line to clear every month, and the cheapest fix is upstream: a required department on every coding screen and a default on every card.

> **Tip.** Write the explanation next to the number while the owner still remembers. "Annual contract moved from March to November" is a sentence; a month later it is a mystery, and the budget owner has forgotten the conversation that caused it.

> **Tip.** Sort the month's card spend by merchant, then by cardholder. The same vendor on three cards is a negotiation you are not having, and a cardholder whose pattern changed is a conversation worth having early.

## What the quarter burned

[Gross burn](https://lopifi.com/md/glossary/gross-burn) is all cash out; [net burn](https://lopifi.com/md/glossary/net-burn) is cash out less cash in. Q4 paid out $74,655: the department spend, $25,200 of payroll from the payroll book, and two one-offs that will not repeat at this size. $48,000 came in (an assumption), so the quarter's net burn was $26,655, or $8,885 a month. Take the one-offs out, naming them, and a normal month burns $7,158.33.

|  | Quarter | Per month |
| --- | --- | --- |
| Cash out | $74,655 | $24,885 |
| Cash in | $48,000 | $16,000 |
| Net burn | $26,655 | $8,885 |
| Less: Annual contract, paid up front | $2,400 |  |
| Less: Racking add-on | $2,780 |  |
| Run-rate net burn | $21,475 | $7,158.33 |

Q4 cash, with the one-offs named. A burn figure is an operating metric, not a GAAP measure.

Read the two figures together. The first is what the bank saw and what the cash balance fell by. The second is what a normal month looks like once a year of a contract and a racking add-on are set aside. [The burn lesson](https://lopifi.com/md/learn/how-to-calculate-burn-rate-and-runway) turns either into runway; dividing cash by the first understates how long it lasts, and by the second ignores that the one-offs happened.

> **Mistake.** Using the card statement as total spend. The card is one door of three, and it misses bills and reimbursements; cash burn also differs from the P&L's expense because of prepaids, accruals and assets. Say which view a number is, every time.

> **Watch for.** A department that is always on budget by a small amount. Real spend moves; a line that never moves is either padded or being coded somewhere else, and the Unassigned line will not tell you which.

**Use case — Burn in an investor update.** An investor update asks for burn. The honest answer states the quarter's net burn, names the two one-offs and gives the run-rate beside it. A company that reports only the lower number gets the question in the next meeting; one that reports both gets a different question, about the plan.

> **Expense analytics are only as good as the coding: a department on every line, a basis on every figure, and the one-offs named.**

**Scenario — Challenge: which lines need an explanation?.** The table above has the budget and actual for six department lines, with the last two columns blank. Write actual less budget for each, then say whether the line needs a written explanation under the rule of $500 and 10%.

**Exercise — Which department lines need an explanation?.** Q4 spend by department against the founders' budget. Write actual less budget for each. A line needs a written explanation only when it moves by at least 500.00 and at least 10 percent of its budget; a line with no budget at all needs one at 500.00 alone, because unbudgeted spend is what the review is for. Type it in the workbook at https://lopifi.com/playground.

## Where this lesson's rules come from

- [CON 8, Introduction — as amended by Ch. 4, App. A (carrying forward CON 6, ¶139)](https://www.fasb.org/concepts-statements) — What accrual accounting is for (concepts)

## Read further

- https://lopifi.com/md/differences/gross-burn-vs-net-burn
- https://lopifi.com/md/startups/burn-rate-and-runway
- https://lopifi.com/md/startups/why-close-your-books-monthly
- https://lopifi.com/md/accounting/burn-rate
- https://lopifi.com/md/accounting/cutoff
- https://lopifi.com/md/tools/spend-per-head
- https://lopifi.com/md/docs/domain/periods-and-close
- https://lopifi.com/md/docs/domain/metrics

- **Track:** [Accounts payable](https://lopifi.com/md/learn/ap)
- **Lesson:** Lesson 21 of 21 — 10 min
- **Terms taught:** [Cost center](https://lopifi.com/md/glossary/cost-center), [Dimension](https://lopifi.com/md/glossary/dimension), [Budget](https://lopifi.com/md/glossary/budget), [Variance](https://lopifi.com/md/glossary/variance), [Operating expenses](https://lopifi.com/md/glossary/operating-expenses), [Gross burn](https://lopifi.com/md/glossary/gross-burn), [Net burn](https://lopifi.com/md/glossary/net-burn), [Flux analysis](https://lopifi.com/md/glossary/flux-analysis)
- **Previous:** [Prepaid and accrued expenses: contracts, bonuses and cut-off, AP · Lesson 20](https://lopifi.com/md/learn/expense-prepaids-accruals-and-cutoff)
- **Next:** [Order to cash: from a yes to money in the bank, AR · Lesson 1](https://lopifi.com/md/learn/order-to-cash-process)
- **The course:** https://lopifi.com/md/learn