Comparing Budgets with Actual Results in QuickBooks 2011
After you record your budget in QuickBooks, you can compare your actual financial results to budgeted amounts by choosing commands from the Budgets & Forecasts submenu. When you choose Reports→Budgets & Forecasts, QuickBooks provides several budgeting reports:
Budget Overview: This report summarizes your budgeted amounts. You can use it to look at and error-check your budget.
Budget vs. Actual: This report lets you compare budgeted income statement information to actual income statement information. The report, therefore, lets you compare your expected revenue and expenses to the actual revenue and expenses.
Profit & Loss Budget Performance: This report lets you compare your actual income, expenses, and profits with your budgeted income, expenses, and profits.
Budget vs. Actual Graph: This graph isn't a report. It's a chart that shows budgeted and actual information.
Forecast Overview: This report summarizes a QuickBooks forecast. A forecast is basically a prediction about your future revenue and cash flow. You use forecasts to do "what if" planning.
Forecast vs. Actual: This report compares a forecast with what actually happened.
With a well-constructed, common-sense budget, you can look for variances between your budget and your actual financial results. You want to use your budget to spot situations in which, for example, an expense item is too low, an asset item is too high, or some revenue number is trailing behind what you expect. Unexpected results often suggest either problems or opportunities. Think about the following examples of variance and what the variances may indicate:
Monthly revenue is $40,000 instead of $50,000. If sales represent only 80 percent of what you expect, you probably need to implement immediate corrective action.
Inventory balances are averaging $50,000 at month's end rather than $100,000 at month's end. This may be good or bad. It may indicate that you are selling products much faster than you expected (and, therefore, you should increase your inventory investment and purchasing of inventory). Having a low inventory investment may also mean, however, that you're simply not getting materials from your vendors as fast as you need them and, as a result, you're at great risk of losing sales because of inadequate stock levels.
Research and development expenses equal $50,000 a year instead of $25,000 a year. Research and development expenses that are twice what you expect seem bad. However, doubling your research and development expenditures may be good if you're unexpectedly investing in some promising new product, idea, or technology.
Sales to a particular class of customer are 50 percent higher. Suppose that you used classes to track sales to customers inside the country and outside the country. If you see that, quite unexpectedly, sales to customers outside the country are 50 percent above what you expect, that variance may indicate an opportunity to sell even more outside the country.