5 Min. Read

The Definitive Guide to Variance Reports

November 18, 2021

You’re a business owner, and you want to know how your company is doing. A variance report can help you figure that out! It’s an accounting report that shows the difference between expected results and actual results. In other words, it tells you whether or not your budget was met for a specific period of time. If there are any deviations from the budget, they will be identified in this document. This helps you make informed decisions about what needs to happen next.

This guide will teach you about variance reports. It has everything from why companies use them, to how they work with budgets and much more. All of this information is packed into one easy-to-read article. Read on to learn more.

Here’s What We’ll Cover:

What Is a Variance Report?

How to Prepare a Variance Report

Key Takeaways

What Is a Variance Report?

A lot of business owners use variance reports as a daily basis to examine the productivity and the effectiveness of their employees. They need these numbers in order to make sure that they are getting what they paid for, and if not, where could the problems lay. Variance reports are definitely not something that you can overlook.

Variance reports are usually performed weekly, monthly, quarterly and even yearly. Even if these reports aren’t being conducted on a daily basis, the company still needs to have a good grasp on what is going on. Without the information that a variance report provides for you, it’s hard to make informed decisions.

There are different types of variance reports, but they can generally be broken down into one of two categories: predetermined and ad hoc.

Predetermined Variance Reports

A predetermined variation report is when you have your budget planned out in advance. This means that the deviations from that original plan will be looked at more closely. These reports are generally conducted on a monthly, quarterly or yearly basis.

Aerospace and Defense companies typically use predetermined variance reports because they need to comply with certain regulations set by the government.

Ad Hoc Variance Reports

An ad hoc variance report is when you have unexpected numbers that need to be looked at quickly. This report will help you make decisions about what the best course of action is for your business. The good thing about these reports is that they can be run on a daily, weekly or monthly basis.

Even though this type of report is typically used only in emergency situations, it’s still helpful to have one prepared. It could be the difference between the success and failure of your business.

How to Prepare a Variance Report

A variance report is usually prepared by an accountant. It’s not too complicated to actually do it yourself though. Spend some time looking at budgets, actual numbers, and financial reports before diving into any calculations that might be necessary. The information you find will be used in the report.

The best way to prepare a variance report is to identify all of your assets and liabilities before you record anything. It’s always helpful to use what you already know about your company and its employees when compiling this document. You want it to reflect as accurately as possible how everyone is doing so that the company can move in the right direction.

Steps to Completing a Variance Report

Prepare the documents ahead of time so that nothing is overlooked. Taking notes on each step will help eliminate any problems or mistakes before they even happen. Follow these steps to get the most accurate results the first time around.

Look over your company’s financial statements and identify which numbers are being used for this report. For example, revenue is usually measured by either last year’s actual sales or budgeted sales. This will make it easier to understand what you’re working with.
List all of your fixed assets. A fixed asset is something that is expected to last longer than one year, which is usually depreciated over the course of several years.
List all of your current liabilities, including accounts payable if you’re not using an accrual basis for this report.
List the revenue numbers, either actual or budgeted.
List your expenses, both fixed and variable. These can include supplies, sales commissions, rent costs, etc.
List the numbers that you used to calculate any variances in revenue or expenses. You will have to use these numbers in order to analyze any differences in the final report.
Add up your expenses and subtract them from your revenue to get the difference. This is the amount of money that you will have available for either growth or extra funding.
List any variances in revenue or expenses by putting them under their respective headings on your list.

Key Takeaways

Variance reports are important documents that help you track your company’s financial status. When used properly, they can tell you whether or not the business is running smoothly and how it should be managed in order to avoid problems down the line.

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