What is a Variance Report in Accounting?


A variance report is a document that compares actual financial results to expected or budgeted results. The report shows the difference between the two values and is an essential tool for businesses to evaluate their financial performance and identify areas for improvement. Variance reports can be used for various financial metrics, such as revenue, expenses, profits, and cash flows.

Understanding Variance Reports

Variance reports are typically created on a monthly or quarterly basis and are used to track progress towards financial goals. These reports compare actual financial results to budgeted or expected results and highlight any significant differences or variances. A positive variance occurs when the actual financial result exceeds the expected result, while a negative variance occurs when the actual result falls short of the expected result.

Variance reports are essential for businesses to evaluate their financial performance and identify areas for improvement. They help businesses identify trends and patterns in their financial data and provide insights into the factors that are contributing to their financial results. By comparing actual results to expected results, businesses can identify areas where they are performing well and areas where they need to make improvements.

Types of Variance Reports

There are several types of variance reports that businesses can use to evaluate their financial performance. Some of the most common types of variance reports include:

  1. Revenue Variance Report: This report compares actual revenue to expected revenue and identifies any significant differences or variances.
  2. Expense Variance Report: This report compares actual expenses to expected expenses and identifies any significant differences or variances.
  3. Profit Variance Report: This report compares actual profits to expected profits and identifies any significant differences or variances.
  4. Cash Flow Variance Report: This report compares actual cash flows to expected cash flows and identifies any significant differences or variances.

How to Create a Variance Report

To create a variance report, follow these steps:

  1. Determine the expected or budgeted financial result for the period.
  2. Determine the actual financial result for the period.
  3. Subtract the expected result from the actual result to determine the variance.
  4. Analyze the variance to identify the factors that contributed to the difference between the expected result and the actual result.
  5. Prepare a report that summarizes the variance and identifies the factors that contributed to the difference.

Conclusion

A variance report is an essential tool for businesses to evaluate their financial performance and identify areas for improvement. Variance reports compare actual financial results to expected or budgeted results and highlight any significant differences or variances. By analyzing variance reports, businesses can identify trends and patterns in their financial data and make informed decisions to improve their financial performance. Variance reports are an important part of the accounting process and are used by businesses of all sizes and types to evaluate their financial performance.

Caroline Grimm

Caroline Grimm is an accounting educator and a small business enthusiast. She holds Masters and Bachelor degrees in Business Administration. She is the author of 13 books and the creator of Accounting How To YouTube channel and blog. For more information visit: https://accountinghowto.com/about/

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