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Budgeted Income Statement

A budgeted income statement is a financial report that compares the budgeted revenue and expense figures with the actual performance numbers achieved during the period. In other words, itís a report that lists the predicted numbers side-by-side with the actual numbers to show the company performance compared with the expected performance.

Management uses the budgeted income statement to track how well both departments and the company as a whole is performing during a period. At the beginning of each period, management typically sets budget and performance goals that they expect the company to meet. These goals are based on performance in prior periods as well as managementís growth expectations.

Since these budgeted numbers are based on predictions and expectations, they are rarely accurate. Departments rarely hit their estimated performance numbers exactly. Itís more often that they exceed or fall short of these goals. The budgeted income statement keeps track of the variances or differences between the actual and budgeted numbers.

Unfavorable variances occur when the actual numbers are worse than the budgeted ones. For example, lower than expected revenues is an unfavorable variance.

A favorable variance, on the other hand, happens when the actual numbers are more profitable than the budgeted numbers. If actual costs for the period were lower than budgeted costs, the company would be more profitable than expected. Thus, a favorable variance would occur.

The budgeted income statement places a U next to each unfavorable variance and an F next to each favorable variance. This way managers can easily identify the performance areas that need the most improvement.

The basic format of a budgeted income statement looks similar to a comparative income statement. The budgeted number are in one column followed by the actual numbers followed by the variance calculation.

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