What is Budget Reporting?
Definition: Budget reporting is a process that entails comparing financial achievements over a given period with targeted or estimated figures. By comparing the actual and estimated figures, owners, executives, or investors can ascertain whether a business is on track to achieve its objectives.
Understanding Budget Reporting
Budget reporting also goes a long way in helping businesses take corrective actions geared towards improving financial performance. Public companies, as well as businesses, prepare a financial budget at the beginning of each financial year. The report, in this case, details the amount of sales expenses as well as profits that a business is expected to generate during the year as well as quarterly.
While a budget report is prepared once a year, tracking takes place almost every month or quarterly. The tracking, in this case, helps identify areas that need immediate attention as well as improvements. The tracking process also helps in the identification of areas where more focus is needed as well as where a business is doing well.
A review of the budget, which is often referred to as budget reporting, helps identify areas where a business is doing well and where corrective measures are needed. In case a business is struggling to meet its sales target, then managers will be able to initiate corrective measures. Some of the rules may include expanding operations to target a broader market as well as employing more sales staff as well as lowering prices and carrying out aggressive promotion.
Budget Report Example
The budget reporting process involves analyzing four main columns in a financial statement.
Budget
The budget column, which is prepared at the start of a financial year, contains all the estimated figures of what managers expect a business to achieve. Conversely, the column details the sales expected quarterly as well as a full year. Likewise, it also details expenses that a business is likely to incur as it moves to generate sales. The column also describes the expected profits that a business is expected to generate at different periods as well as a full year.
Actual
The Actual column contains information about the actual figures on sales expenses or profit that a business has generated, depending on its financial reporting model. The actual figures on sales as well as expenses will consequently be compared with figures on the budget statement detailed at the start of the financial year.
Over/Under Budget
The over/under budget column provides a difference between the budget and the Actual column. In this case, it tries to tell whether a business exceeded or fell short of its targets at different periods. For instance, it will determine whether business reported an increase or a decline in sales by comparing the estimated and the actual figures.
Percentage (%) Of budget
The % of Budget column represents the over and the under achievements of a business as a percentage. In this case, it will show the percentage by which actual sales exceeded or fell short of estimates.
Budget Reporting Statement Example
Assume auto company XYZ in its budget statement expects sales of $100,000 for the first three months of the year. After three months, the company ends up generating $110,000 in sales, which in this case, are actual sales represented under the Actual column.
The difference between actual sales ($110,000) and budgeted sales ($100,000) will translate to an increase in sales of $10,000. Likewise, the percentage increase will be 10%.
The budget report, in this case, shows that the business is in the right trajectory, given the 10% increase in sales. Likewise, company XYZ can enhance production as well as sales operations in a bid to accelerate sales, given the strong demand that led to a sales increase.
Summary
Budget reporting is carried out to ascertain if a business is managing resources well to meet its estimated target. Likewise, it helps in the preparation of annual financial reports that investors and shareholders use to ascertain how a company or business is doing in its push to grow wealth and create value.