What is budget versus actual?

Definition

Budget versus actual is a report that places the approved plan next to the amounts that actually posted for the same period. On the books this is not a ledger account; it is a side-by-side view of planned numbers and actuals.

The actuals come from the general ledger. The planned column is the target that was approved before the period started.

The comparison is the report itself. Explaining why a line missed the plan is a later step, and the plan itself is a separate document.

Where it shows up

P&L: Related to comparing planned versus actual income and expense.

Balance Sheet: Related to comparing planned versus actual balances when those are in the plan.

Cash flow: Related to comparing planned versus actual cash when a cash plan exists.

See also: Budget · Variance Analysis · Management Reporting Package

When you look at your Income Statement, this report usually sits as extra columns beside the actuals. Revenue and expense lines show the plan, the actual, and the gap.

The Balance Sheet can carry the same three columns when the plan included asset or financing targets. Cash on the statement is still the actual; the extra columns are only the comparison.

A cash version of the report, when a cash plan exists, compares planned receipts and payments to cash that actually moved. Owners usually read this after the period closes, not as a posting.

How it works

The plan is locked in before the period. Actuals accumulate as transactions post.

After the period, someone pulls both sets of numbers for the same accounts and the same dates. Each line gets a plan amount, an actual amount, and a difference.

A favorable gap on revenue means actuals came in above plan. A favorable gap on expense means actuals came in below plan.

An unfavorable gap is the reverse. Revenue of $8,000 against a $10,000 plan would be a $2,000 unfavorable gap on that line.

Operating expenses are compared line by line the same way. Payroll, rent, and insurance each get their own plan, actual, and gap.

The report does not post anything. No journal entry is needed to produce the comparison; it is a view of numbers already in the books plus numbers already in the plan.

Some teams split the same report by department, location, or product line. The shape is still plan, actual, and gap; only the slice of the business changes.

The next step after reading the gaps is variance analysis. That work investigates why a line missed the plan; this report is only the comparison that shows the miss.

Flux analysis is a different comparison. Flux explains why an account moved versus the prior period, not versus the plan.

An updated projection of where the numbers are heading is also a different document. The comparison report still uses the approved plan as the baseline, not that later update.

Example

Harbor Kayak Rentals planned $10,000 of June rental revenue. The shop actually collected $12,000.

The June comparison shows $10,000 plan, $12,000 actual, and a $2,000 favorable gap. That extra $2,000 is not a new plan; it is the actual beating the target.

Payroll was planned at $4,000 and landed at $4,200. That $200 is an unfavorable gap on the payroll line.

The owner reads both lines on one page. Revenue ran $2,000 hot; payroll ran $200 over.

The report does not explain the extra rentals. A busy holiday weekend might be the reason, but that investigation is the next step, not this report.

If the owner later updates where the rest of the summer is heading, that update is not this comparison. June's report still shows June's plan versus June's actuals.

Common mix-ups

Budget versus actual is not the budget. The budget is the approved plan; this report is the comparison of that plan to what happened.

Budget versus actual is not variance analysis. Variance analysis investigates and explains the gaps; this report is the side-by-side that first shows them.

Budget versus actual is not a forecast. A forecast is an updated projection of where the numbers are heading; this comparison still uses the original approved plan.

Related terms

• Budget: The approved plan of revenue and spending for a coming period.
• Variance Analysis: Investigating and explaining differences between two sets of numbers.
• Forecast: An updated projection of where the numbers are actually heading.
• Departmental P&L: An income statement split by department, location, or product line.
• Flux Analysis: Explaining why each account moved compared with the prior period.
• Management Reporting Package: The internal reporting set that pairs financial statements with operating metrics and commentary.
• Operating Expenses: The ongoing costs of running the business that are not direct costs of sale.
• Cost Center: A part of the business tracked for its spending rather than its profit.