Kevin has edited encyclopedias, taught history, and has an MA in Islamic law/finance. He has since founded his own financial advice firm, Newton Analytical.
A flexible budget performance report can act as a report card on your department's flexible budget, letting people know what adjustments should be made to it for more accuracy in the future.
Flexible Budget Performance Report
As you probably know, budgets are rarely perfect. Truth be told, it's for the best that they're flexible. In fact, that's why we often call the budget from which expenses are planned the flexible budget. However, at the end of an accounting period, real numbers replace the flexible budget and other projections when accountants are trying to reconcile their data.
One of the most important documents to help accounting reconcile everything and plan for the future is the flexible budget performance report. In short, it does exactly what it says it does: it provides feedback on just how well the flexible budget performed under actual business conditions. In this lesson, we'll see how a flexible budget performance report is made, where the numbers for it come from, and the reasons for making one in the first place.
So, the flexible budget performance report is written at the end of every period. The process of making one is very straightforward. First, list all categories in which expenses were accrued. Then, in the next column, list all the actual expenses. Next to those, include the relevant figures from the flexible budget. Finally, in the final column note the difference between the actual expenses and the flexible budget. If there is a difference, be sure to notate whether or not the variance was favorable, meaning money was saved, or unfavorable, meaning more money had to be spent than was budgeted.
Luckily, the numbers to create the flexible budget performance report are relatively easy to find. You should have access to the actual amounts spent by your department from receipts. The flexible budget provides the planned numbers. To find the variances, simply subtract the actual amount spent from the corresponding number from the flexible budget. Be sure to notate whether or not the result is negative or positive, as this will inform if it's an unfavorable or favorable variance.
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Let's say that you didn't make a flexible budget performance report, and the next accounting period came around. You make a bigger request for funding, but it's denied. Period after period, you come out over costs, making upper management question your abilities. However, had you made a flexible budget performance report, the reasoning for your increase in requested funding would be pretty obvious. Due to increased costs, you need the extra money to do your job.
Or do you? Upper management can use the flexible budget performance report to help make decisions beyond the remit of a single manager. If they notice that costs are continuing to rise, it may be time to find a new supplier or examine transportation costs. In any event, by turning in a flexible budget performance report, you give management the tools they need to make the best possible decisions.
In this lesson, we learned that a budget from which expenses are planned is known as a flexible budget. We saw that a flexible budget performance report acts as a sort of grade card on just how well the flexible budget performed during a given accounting period. To make it, we used the actual figures, the figures from the flexible budget, and the difference between the two established variances. The flexible budget performance report allows managers to back up their requests for additional funding as well as permit upper management to make better strategic decisions.
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