Accounting and finance

Budgeting and variance analysis

The budgeting process

• this involves a business looking into the future, deciding what it wants to happen and then deciding how it is going to reach these aims

• the stages involved are as follows;

preparation of plans

comparison of plans with actual results

analysis of variances

Variances

• variances are the key to analysing budgets• a variance is the amount an actual figure

varies from a budgeted onea variance is called favourable ifthe difference is going to have apositive affect for the business

(e.g. higher revenues or lower costs)

a variance is called adverse ifthe difference is going to have

a negative affect on the business(e.g. lower revenues or higher costs)