What is a Budget Report?
A budget report is an internal report used by management to compare the estimated, budgeted projections with the actual performance number achieved during a period. In other words, a budget report is designed to compare how close the budgeted performance was to the actual performance during an accounting period.
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.
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.
What Does Budget Report Mean?
Since budgets are financial goals based on estimates and future projections, they are often inaccurate and can differ largely from the actual financial performance of a company. During an accounting period managers often compare the budgeted numbers that were prepared at the beginning of the period to the actual numbers they are incurring.
Business owners and employees often use the terms “financial report” and “budget report” interchangeably. Although both types of reports provide information about a company’s finances, the goals and contents of both reports are drastically different. Accountants and financial planners working in a company must know the difference, as these individuals are responsible for creating these reports for the proper readers.
Budget reports are documents that present a single company’s various budgets at any given time. Examples of budgets include operations, production, sales and marketing. The goal of a budget report is to determine how much each area is given in funds and how well the departments use their given funds to reach the goals of the business. A budget report only shows the company’s incoming and outgoing cash flow and expenses, so the report does not reveal how well the company is doing — only how it spends its available money.
A financial report is an in-depth report and analysis of how well a company is doing. This type of report includes all of the budgets listed in a budget report, but it also includes a breakdown of assets and liabilities to reveal the company’s net worth. This net figure is a representation of how much the business is worth, which is appealing to outside sources. In addition, this report includes an analysis of the figures and predictions of how the company will do in upcoming years based on internal financial planning.
Purposes and Uses
A budget report is written to show how a given business is managing its funding. It is prepared by accountants and reviewed by managers and executives responsible for operations and production. The purpose is to see how the company spends its available funds and how much is available for new products, for example. An annual financial report is written for investors and shareholders who are interested in getting updated information from the company. Some investors use the financial report as primary research for potential investments.
Both a financial report and a budget report can be used internally to make a solid financial plan for the business in question. Financial planners can use the net worth to determine how the company should manage its assets and liabilities. In addition, the budget report will reveal where budget cuts can be made to either buy an asset or put funding aside to pay off liabilities, for example. The annual financial report and the budget report show accurate numbers of the company’s immediate financial situation and overall worth.
A Budget Report’s Content and Sections
A company’s budget report will have different sections depending on its financial needs and the data available for the business. Common sections include:
- general income and sales information,
- the fixed and flexible expenses that are necessary for the business to operate to full potential, and
- the net worth of the entire company, including assets and liabilities.
More extensive budget reports might also include a letter from the company owner about any major financial changes in the company during the reporting period, and predictions for the future.
It’s important to recognize that there’s a difference between financial reporting and financial statements. A budget and similar financial reports are useful tools, but that’s all they are. Financial statements make more formal representations of a company’s value, and must meet specific legal and regulatory standards.
Types of Budget Reports
Budget reports or financial reports are written and created based on the needs of the business. A smaller business with a modest level of annual sales may only require a single financial year budget. However, a larger business with several hundred sales per day may need a budget report several times a year, also called quarterly reports. Keeping track of the finances and budgets makes it easier to compose the annual report for the business.