How to do a budget vs actual report

Why it matters

A budget only helps when you compare it with what happened. The report shows where money is going off track while you can still act.

A short commentary on big variances turns numbers into decisions.

The steps

1. Get the budget. Use the approved budget for the same period and same account groups as the actuals.
2. Run actuals. Run the profit and loss for the period from your ledger. Use the same basis, cash or accruals.
3. Set the layout. Show budget, actual, dollar variance and percentage variance for each line.
4. Work out the variance. Variance = actual minus budget. Percentage = variance / budget x 100.
5. Mark favourable or unfavourable. Higher income than budget is favourable. Higher cost than budget is unfavourable.
6. Set a threshold. Comment only on variances above, say, 10% and A$1,000.
7. Explain the big ones. Say why in one line, whether it is timing or permanent, and what you will do.
8. Update the forecast. If a variance is permanent, change the forecast for the rest of the year.

Worked example

Example Distribution Pty Ltd reviews October.

Line	Budget	Actual	Variance	%	Result
Sales	A$65,000	A$60,000	-A$5,000	-7.7%	Unfavourable
Cost of sales	A$32,500	A$30,000	-A$2,500	-7.7%	Favourable
Wages	A$12,000	A$12,000	A$0	0.0%	On budget
Freight	A$2,000	A$2,900	A$900	45.0%	Unfavourable

Sales are 7.7% below budget, and cost of sales fell by the same percentage because volume was lower. Freight is 45% over, so the team checks rate rises and surcharges.

Common mistakes

• Comparing different bases or periods.
• Commenting on every line.
• Treating every variance as bad.
• Not changing the forecast.

Next step

Use the Budget vs actual variance report generator first. Then see faster month-end close with Pulsify.