Bookkeeping – Regulator Accounts (Lesson 80)

Lesson 80

Regulator accounts are non trial balance accounts used to guide and compare actual results against projected amounts.   These projections are customarily stored in regulator accounts.  The most common regulator account is a budget account.   Other regulator accounts include counters and identifiers.

Unlike internal and restrictive accounts, regulator accounts generally do not require closing entries prior to preparation of final reports.  There are some exceptions depending on the respective software used.

This lesson explains regulator accounts and why they are used.  It further elaborates on the two most important types – budget and counters.  Finally, I’ll touch base regarding technology and how to implement these accounts in small business.

Regulator Accounts – Controlling Operations

One of the keys to success for business operations is managing the results.  The best tool is the feedback loop.  One leg of this loop is the expectations with the corresponding results.  Expectations are established by using regulator accounts.   Think of regulator accounts as performance standards or as a gauge of production.   Something along the lines of: ‘I expect my company to produce 18 units this week’  or ‘I expect 240 man-hours of field work on this project this month’ and so forth.  This is all a part of managing results.

Regulator accounts are used to achieve these goals.  It is like a second set of books in business.  This does require additional work from the bookkeeper, but the results can really generate value for management.                                                                   

There are three types of regulator accounts – budget, counters and identifiers.

* Budget Based – Accounts with an anticipated financial result based on historical results and expected change in the forthcoming accounting period are called budgets.
* Counters – A database field that adds up the actual number of transactions made related to a particular type of account or for a unique account are called counters.  The most common counter is the number of sales (units) recorded.
* Identifiers – Sophisticated operations use identifiers to point a value towards a unique legal compliance requirement.  As an example, government contracts often stipulate assignment of values for a particular job, function and cost type (labor, materials, etc.).

Actual results from corresponding accounts are then compared against the expected to identify discrepancies and ultimately the root cause of the discrepancy.

The next two sections elaborate in more detail about budget accounts and counters.

Budget Accounts

Budgeting is the process of preparing expected financial results for the upcoming accounting cycle.  It does require some level of expertise with estimating amounts for frog each account.  In general,  the whole formula revolves around the focal point of sales.  Without proper knowledge of all the elements involved with sales, it is really impossible to forecast this single trigger amount.   Even with this knowledge affect forecasting sales.   This includes risk issues, labor availability, equipment capacity and other variables greatly and the local economy.   Often sales are triggered by customer demand and most small businesses have little to no control over the volatility of the customer’s operation or needs.

This is why with businesses of less than $5 Million per year in sales budgets are pretty much a fruitless endeavor.   Economy of scale is necessary to effectively plan dollar amounts for the respective accounts.

Most accounting software programs simply allow a budget amount to be established for each account within the revenue, cost of sales and expense accounts with debit/credit balance with the resulting budgeted current earnings in the equity section of the balance sheet.  Only advanced expensive software programs provide budget accounts for balance sheet accounts.  To budget amounts for assets, liabilities and equity is not only difficult but requires knowledge of cash flow from operation and cash flows statement. Even most CPA’s can’t perform this task.   So in general, only large publicly traded entities go this extreme with budgets for business operations.                                                  

Most budgets are organized in accordance with the trial balance section related to revenues, cost of sales and expenses.  Existing technology allows the bookkeeper to enter the expected amounts.  At the end of the accounting cycle reports identify variances between the expected value and the actual value.    These results are used to evaluate performance based on the variance.   The following is an example for office operations, a section of expenses, controlled by the office manager.   Here is the report:

.                                  COHEN, SMITH & TILLEY, P.C.
.                                 Budget Variance Report – Office Operations

.                                   For the Year Ending December 31, 2016

.                                                                                  Budgeted        Actual      Variance
Revenue:  Office Copies/Faxes/Mailings/Filing            $3,700         $3,969         $296

Expenses:  Office Operations
.        – Technology  (Maint/Ops/Software)                    (7,400)          (7,759)       (359)
.        – Supplies  (Non-Paper Items)                              (1,250)           (1,040)        210
.        – Paper                                                                     (890)              (942)         (52)
.        – Postage                                                               (2,150)           (2,316)       (166)
.        – Court Fees                                                          (1,970)           (2,008)         (38)
.        – Client Relations (Food/Parking)                        (1,800)           (1,637)         163
.        – Other                                                                     (200)              (126)           74
Sub-Total Office Operations                                        (15,660)         (15,828)       (168)
Budgeted and Actual                                                  ($11,960)       ($11,859)       $101

There are some important notes for the reader to understand in evaluating the results:

A) The report is one section of the entire income statement and should be interpreted from a very narrow perspective of strictly the overall cost of running the office.   In effect, management is expecting the net cost to operate the office equipment and supplies to run $11,960.
B) Budgeted costs are $15,660; but this firm expects to charge their clients $3,700 during 2016,  mostly for court filing fees – $1,970 (expected).
C) Notice that expenses are in parenthesis, this does not mean they are contra accounts, it merely indicates that their values are opposite of the value recorded with the corresponding revenue.  I’ve seen many accounting packages present revenue with parenthesis (credit values) and expenses without.  The key is that one is the opposite of the other.
D) The actual net cost to run the office was $11,859 with an expectation of $11,960.  This means office operations cost $101 less than anticipated.  The office manager did her job.   It isn’t grounds for a raise, it simply means she performed as expected.
E) Realize that some expenses in the office are reimbursable from the clients. This includes court filings, postage (certified and registered mailings), faxes and copies. So if these costs exceeded the expected, there will be a corresponding increase in revenue to offset these costs; which in this case happened.  See court fees and postage.

As stated earlier, budgets are generally ineffective for operations with less than $5 Million in revenue due to the variances involved with sales and the associated direct and indirect costs.   This doesn’t mean they shouldn’t be created with small business; it means that there are better and more effective tools to use with small business.    As an example, project driven operations such as construction should use estimates for the costs of the project to determine markup and margin.   But for the small business another type of regulator account is by far the most effective – counters.


Unlike budgets which reflect the financial value of the respective transactions, counters provide the number of units involved.   A perfect example is payroll.  Almost every payroll program or module allows the bookkeeper to track the number of hours for each respective employee.  Retail software keeps track of the number of transactions involved by time period, register or salesman.   Inventory programs identify units purchased, consumed and sold to customers.   These counters are designed as a part of the databases they belong to with accounting software.

Many small businesses use QuickBooks by Intuit as their accounting software.   QuickBooks has counters built into its sales database along with payroll and inventory.    As explained in Lesson 76 about retail, if your small business sells less than 50 different items use the traditional core accounting software to track units sold; more than 50, add on the retail module.

The secret to getting well organized information out of the system is with reports.  Sales reports typically include the number of units sold and the corresponding dollar value involved.   Look at the difference between these two sales reports for this appliance company.

Sales by Item Code

Month Ending October 31, 2016

.    Item                       Units            Sales
Refrigerators                63           $47,714

Washers/Dryers          107             43,619
Dishwashers                 44             27,391
Stoves/Ovens               35             23,202
Totals                          249         $141,926

Sales by Employee by Item Code

Month Ending October 31, 2016

Employee ID:   SEC
.    Item                       Units           Sales
Refrigerators                17          $13,492

Washers/Dryers            42            17,791
Dishwashers                   9              5,182
Stoves/Ovens               16             11,008
Sub-Totals                    84           $47,473

Employee ID: JMH
.    Item                       Units           Sales
Refrigerators                29            $20,231
Washers/Dryers            36              14,362
Dishwashers                 19              11,307
Stoves/Ovens                11               7,087
Sub-Totals                     95           $52,987

Employee ID: DJH
.    Item                     Units           Sales
Refrigerators               17          $13,991
Washers/Dryers          29             11,466
Dishwashers               16             10,902
Stoves/Ovens               8               5,107
Sub-Totals                  70           $41,466
Totals                        249         $141,926

Both reports identify 249 units sold for $141,926.   However, the sales by employee is substantially more informative than the simple sales by item code report.  Employee JMH outperforms his colleagues in units and in dollar value sold.   The most meaningful aspect of counters is establishing budgets for units sold.   In Aaron’s case, budgets by item and by salesman are essential in meeting overall financial performance.   As stated before, regulator accounts are excellent tools to guide an operation towards success.   Look at DJH’s performance.   He is 25 units lower than JMH.  Management uses this report to evaluate why.  Questions needing answers include:

1) How many hours and days of the week did DJH work in comparison to JMH?
2) Does DJH focus on a particular appliance to the detriment of others?
3) Was DJH properly trained?
4)  Is JMH more aggressive in his sales tactics than the others?
5)  Is Aaron’s doing enough to bring in customers or provide leads to its sales staff?

This is the value regulator accounts bring to a business.  They assist management in evaluating overall performance and guide the business towards peak performance.


Regulator accounts are one group of temporary accounts.   Regulator accounts comprise budget, counters and identifiers.   Budget accounts are used to establish financial goals.  Counters are used to set unit counts mostly with sales or production.   Identifiers are used for compliance.   None of these accounts are used with year-end financial reports.   They are strictly designed for management purposes.   Act on Knowledge.

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About David J Hoare 444 Articles
I spent 12 Years as a Certified Public Accountant, Over 20 Years of Practice in Accounting and Consulting, Controller in Management of Closely Held Operations, Masters of Science in Accounting, Prepared over 1,000 Business Tax Returns and Hundreds of Individual Returns