Budget vs Actual

Budget vs actual compares the plan to the result. For each line in the income statement, and often for each department, the report shows the budgeted amount, the actual amount from the general ledger, and the difference. Finance teams run it every month, and the controller or FP&A lead writes the commentary that goes with it.

The calculation is subtraction. Variance equals actual minus budget, shown in dollars and as a percentage of budget. The sign needs a convention. A revenue line that comes in above budget is favorable. An expense line above budget is unfavorable. Reports that show raw differences without labeling favorable or unfavorable force every reader to redo that reasoning.

The report answers two questions. Was the plan accurate, and is spending under control? A large variance on a line can mean the budget was wrong, the business changed, or someone spent without approval. Only the explanation tells you which.

Three practices make the report useful. Set a materiality threshold in both dollars and percent, and explain only the lines that cross it, so a small account with a 40 percent swing does not drown out a large one with 3 percent. Split price from volume where the line allows it, since a headcount overrun and a salary overrun need different fixes. Write each explanation as a cause with evidence, such as "two engineering hires started in March, not June," instead of "timing."

Budget vs actual sits in a family of three comparisons. Variance analysis is the general technique of explaining the gap between an actual result and any benchmark. Flux analysis compares period over period during the close, to catch errors before the statements go out. Budget vs actual is the version where the benchmark is the approved plan. A close process usually needs all three.

Timing matters. A monthly report should land within days of the close, while the people who made the spending decisions remember them. A report that arrives three weeks after month end explains a month nobody can still change.

Related terms: Variance Analysis, FP&A, General Ledger, Record to Report

Go deeper: Flux Analysis: The Complete Guide for Accounting Teams

The slow part of this report is gathering the actuals and drafting the commentary for each flagged line. Adopt's agents pull the ledger, compare it to the budget, and draft the explanation with the transactions behind it, and your team reviews and approves. Sign up free.