Income Statement Variance Analysis

The income statement prior year variance compares actual and budget including last year s actual for revenue and expense accounts for the current month and month ytd.

Income statement variance analysis. In general going under budget is a positive variance and over budget is a negative variance. Variance analysis is vital to good management. Information obtained from revenue. Variance budgeted cost income actual cost income favorable variance positive.

Variance analysis can be summarized as an analysis of the difference between planned and actual numbers. A variance report is one of the most commonly used accounting tools. Revenue variance analysis is used to measure differences between actual sales and expected sales based on sales volume metrics sales mix metrics and contribution margin calculations. It is essentially the difference between the budgeted amount and the actual expense or revenue.

Variance analysis is essentially a comparison of actual results to the budget which may have been derived from political bargaining. This report uses the following configuration. Flexed budget acts as a bridge between the original budget fixed budget and the actual results. You have to track follow up on budgets mainly through variance analysis or the budgets are useless.

In order to make variances meaningful the concept of flexed budget is used when calculating variances. The calculation looks at the change or variance in two values over time such as sales revenue or net income. Variance analysis highlights the causes of the variation in income and expenses during a period compared to the budget. The sum of all variances gives a picture of the overall over performance or under performance for a particular reporting period fiscal year fy a fiscal year fy is a 12 month or 52 week period of time used by governments and businesses for accounting purposes to formulate annual financial reports.

Variance analysis formula a formula for variance analysis is as under. A variance report highlights two separate values and the extent of difference between the two.