Budget vs Actual
Every line with its variance and whether it went the right way.
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This sheet is a working document. If you are redoing it every month, ledger software does the reconciliation for you and keeps the audit trail — that is the part a template cannot do.
For the period [date] to [date]. A positive variance means the actual figure came in above budget — good on a revenue line, bad on a cost line.
| Head | Budget | Actual | Variance | Variance % |
|---|---|---|---|---|
| [add one line per head] | ||||
| Totals | $ 0.00 | $ 0.00 | $ 0.00 | — |
What is a Budget vs Actual?
A budget versus actual report sets the figure you planned beside the figure you got, line by line, with the variance in currency and percentage terms. A budget nobody compares against is just a document. The comparison is where you find the subscription that renewed at three times last year's price, the project running £12,000 over, and the revenue line you have quietly been missing since March.
Department heads, finance business partners, boards and trustees use this monthly, and project managers use it per project rather than per period. Grant-funded organisations use it hardest, because the funder usually wants spend reported against approved budget headings rather than your own chart of accounts. It is also the working document for a mid-year reforecast: you cannot rebuild the second half of a budget without understanding, line by line, why the first half came out as it did.
Internal management reporting has no mandated format, so the layout is yours. Where the report faces outward it stops being free-form. Grant agreements and public sector contracts set their own budget headings, variance thresholds and the point at which you must seek approval to move money between lines. Listed companies reporting segment results follow IFRS 8 or ASC 280, which is not the same as your internal pack. Check the funder's agreement before designing the columns.
The report identifies variances; it does not explain them, and a column of numbers with no commentary gets explained wrongly by whoever is in the room. It also does not distinguish a timing difference from a real one — an invoice arriving a month late produces an underspend followed by an overspend, and neither is a management problem. Finally it is not a cash report. An accrual overspend may not have left the bank yet, and a favourable variance can sit alongside a cash shortage.
What to put in a Budget vs Actual
These are the details this template asks for. Anything left blank is marked in red on the preview so you can see what is still missing.
| Field | What goes in it |
|---|---|
| Business name | For example: Barton Supply Co. |
| Your address | For example: Unit 7, Barton Road, Columbus, OH 43212 |
| Period from | Free text |
| Period to | Free text |
| Budget and actual | One per line: Head | Budget | Actual |
How to write a Budget vs Actual
Compare like with like
Confirm the budget and the actuals are on the same basis before subtracting anything. If the budget was built on cash and the ledger runs on accruals, every line shows a variance that means nothing. Check the period definitions match too — a budget split into twelve equal months against a ledger on four-week periods produces a phantom variance that reverses every quarter.
Show variance in currency and percentage
Give both, because each hides what the other reveals. A £900 overspend on a £1,000 line is a 90 per cent failure of control; the same £900 on a £400,000 line is rounding. Percentages alone make small lines look catastrophic; currency alone lets a large line drift. Set a materiality threshold in both terms, below which no commentary is required.
Make favourable and adverse unambiguous
A cost below budget is favourable; revenue below budget is adverse. If you rely on the minus sign to convey this, half the readers will misread the income section. Label each variance F or A, or use a separate column, and state the convention in the header. This is the single change that stops the same argument recurring at every meeting.
Separate timing from permanent variances
Before writing commentary, ask of each variance whether the money will still be spent. A delayed hire starting next month is timing, and the full-year position is unchanged. A supplier price rise is permanent, and the full-year position has moved. Show year-to-date and full-year forecast columns alongside the period so a reader can see which kind they are looking at.
Write one line per material variance
Name the cause, the amount and what happens next: recruitment delayed one month, £6,000 underspend, post starts in October, full-year effect nil. Do not restate the number in words. If a variance has no explanation yet, write that it is under investigation with a name and a date against it, rather than leaving the cell blank for someone to invent a reason.
Common mistakes
- Comparing an accrual ledger to a cash-basis budget generates variances on nearly every line, which trains readers to ignore the report entirely.
- Spreading an annual budget evenly across twelve months when the spending is seasonal produces alarming variances in some months and false comfort in others.
- Relying on the minus sign instead of labelling favourable and adverse gets income variances read backwards, and the meeting congratulates a team that missed its target.
- Presenting variances with no commentary means the loudest person in the room supplies the explanation, and decisions are taken on it.
- Treating every underspend as good news hides stalled projects, work that was never done, and grant money that may have to be returned unspent.
Frequently asked questions
How do you calculate budget variance?
Subtract the budget from the actual for each line, then divide that difference by the budget for the percentage. Whether the result is good or bad depends on the line: for costs, actual below budget is favourable; for revenue, actual below budget is adverse. Label it rather than leaving readers to infer the direction from the sign.
What is a favourable variance?
One that leaves you better off than planned — costs lower than budgeted, or income higher. It is not automatically good news. A favourable staff cost variance caused by unfilled vacancies usually means work is not being done, and a favourable maintenance variance often means deferred maintenance that costs more later. The explanation matters more than the direction.
What variance is acceptable before I need to explain it?
That is a threshold you set, not a fixed rule. Most reports use two tests together, a currency amount and a percentage, so both small lines with large percentage swings and large lines with modest drift get flagged. If you report to a funder or under a contract, the agreement often specifies its own thresholds and approval points.
What is the difference between budget versus actual and a forecast?
Budget versus actual looks backwards, comparing what happened against the plan agreed at the start of the year. A forecast looks forwards, restating where you now expect to end up. They belong side by side: the variance analysis is what makes the forecast credible, and the forecast is what makes the variance analysis useful.
Should the report use gross or net figures?
Use the same basis the budget was set on, and say which in the header. If the budget excluded recoverable VAT or GST, the actuals must too, otherwise every cost line shows an overspend equal to the tax. For a partly exempt organisation that cannot recover all its input tax, confirm the treatment with your accountant before fixing the basis.
This page explains general practice and is not legal advice. Requirements differ between countries and, in some cases, between states — check what applies where the document will be used.