What is a Budget Report?

A budget report is a comparison of the actual results of a business to a pre-established budget. This report is issued to anyone responsible for a line item in the income statement, which usually means the department managers. The budget report is used to determine which expenditure levels are too high, so that actions can be taken to bring expenditure levels back down to the budgeted amount. This report is one of the most frequently-used tools for maintaining control over the financial results of a business. It is especially useful when management has gone to the trouble of devising a budget that is likely to track closely to actual results.

The Income Statement as a Budget Report

A modified income statement can be used as a budget report. In this format, an extra column is included that states the budgeted amount for each line item, while a third column calculates the variance between actual and budgeted results. This approach requires the involvement of the accounting department, which has to load the final budget numbers into the report writer module of a firm’s accounting software.

Managers are generally expected to take action when a budget versus actual variance both exceeds a certain percentage and dollar threshold. For example, a variance might need to be at $25,000 and a 10% variance before a manager is expected to deal with the issue. This approach keeps small-dollar, high-variance items from bogging down management time.