Many businesses undertake the process of budgeting effectively but they fail to follow it up with an appropriate budget report. The final stage of any budgeting process is the preparation of well-designed budget reports without which the purpose of budgeting is nullified. Imagine you made a budget for sales of different regions but never checked through a report as to which region outperformed at the end of the year and which didn’t.
What is Budget Report?
Reporting is an integral part of budgetary control. A budget report (also known as a budget performance report) is an analysis report which shows the results achieved during a certain period against the budget set. This report could be prepared for any department or function. A budget report sets out the budget for the concerned period and the actual performance together. Along with such depiction, it also showcases the reasons for any difference between the actual and budgeted performance. Thus, it is a critical analysis of budgeted vs actual figures to locate reasons for deviations, if any, and to take corrective steps in the future.
It is a document that periodically communicates that: which results are achieved, which ones are exceeded, and which are not achieved. It gives the management an insight into operational inefficiencies.
Budget reports are normally sent by a Budgetary Controller or Budget Officer to various departments and their functionaries. A Budgetary Controller or Budget Officer is one who is in charge of budgetary arrangements in a business. He would send a budget report to every department so that the performance of that department or function can be evaluated. It is through this report that everyone is kept informed of their performance, the performance of subordinates, and that of the department as a whole so that remedial measures are taken.
How to prepare Budget Report?
Before having a look at how budget reports are designed, you should know that there are some essential features that a good budget report must have. These are the following:
- A budget report should be factual. All facts and opinions must be separated and they should be separately stated.
- The report should be prompt. This means that it must be made and submitted immediately after the concerned period is over. Otherwise, it won’t serve any purpose as improvements suggested by the current period’s report are applied to the upcoming period.
- A budget performance report should be as accurate as possible although a small degree of inaccuracy may be permissible for the promptness of the report.
- The report should be made for each area/function of responsibility separately so that individual responsibility can be fixed for under-performance in a specific function.
- The standards and actuals must be set out in such a way that a ready comparison can be easily made.
- If there are substantial departures from what was expected or what ought to be in the ordinary course, they should be highlighted with significance so that management by exception can occur. Management by exception is a strategy where top managers step in to resolve an issue only if there are substantial departures.
- Items of controllable and uncontrollable nature should be mentioned separately in the report.
- The report should be brief. In case it is lengthy, it should be confined to one page as a summary and accompanied by supporting schedules.
- It should be properly dated.
- The report should be appropriately named so as to convey the purpose. For example, BUDGET REPORT ON MATERIAL COST, Jul-Dec 2022.
- It must state who has prepared it and to whom it is being forwarded.
Here are some templates to give you an idea of how a budget report is prepared:
Formats for Budget Report
A sample budget report is normally designed in the same way as an income statement. Sales and revenue are displayed first, followed by the cost of goods sold (COGS), selling & distribution expenses, general and administrative expenses, other expenses, and lastly a net operating income figure.
Typically, the budgeted numbers and the actual performance results for the period are listed side by side in two columns. A third column is commonly added to list the variations. Favourable variances occur when actual results exceed budgeted results (on the income side). These are denoted by an F in the margin.
The opposite is the case for unfavourable variations. When the actual numbers (on the income side) are lower than the budgeted numbers, a U is written in the margin to indicate the poor performance in that area. Similarly, when actual expenditures are higher than the budgeted numbers, it also represents an unfavourable variance. These variances help the management to locate reasons for the same, fix responsibility for the concerned department/manager, and take necessary steps to improve the results.
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