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.

When to Use Budget Reports

There are several situations in which it is especially useful to issue budget reports. They are as follows:

Monthly departmental performance reviews. Issuing budget reports monthly allows department managers to monitor their spending and revenues compared to the approved budget. This helps identify areas where expenses may be running high or revenue is underperforming. Regular reporting ensures that corrective actions can be taken promptly to stay within financial targets.
After major business changes. Following a significant event—such as a product launch, restructuring, or economic shift—it is important to assess the financial impact through a budget report. This helps managers understand how the event affected their budgeted expectations versus actual results. It also provides data-driven insights for adjusting future plans or reallocating resources.
During mid-year or quarterly budget reforecasting. Budget reports are essential when companies conduct mid-year or quarterly reviews to update their forecasts. Comparing actual results to the original budget helps refine financial projections for the remainder of the year. This ensures more accurate decision-making and better alignment of resources with business goals.

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.