Budget Variance

AAA

DEFINITION of 'Budget Variance'

A periodic measure used by governments, corporations or individuals to quantify the difference between budgeted and actual figures for a particular accounting category. A favorable budget variance refers to positive variances or gains; an unfavorable budget variance describes negative variance, meaning losses and shortfalls. Budget variances occur because forecasters are unable to predict the future with complete accuracy. As a result, some variance should be expected when budgets are created.

INVESTOPEDIA EXPLAINS 'Budget Variance'

Budget variances can result from two sources - the things that can be controlled and things that cannot. A poorly planned budget, for example, is a controllable factor. Likewise, things like labor costs can be controlled by taking measures such as prohibiting overtime. Uncontrollable factors are often external and arise from occurrences outside of the company such as a natural disaster.

RELATED TERMS
  1. Budget Committee

    A group of people that creates and maintains fiscal responsibility ...
  2. Performance Budget

    A budget that reflects the input of resources and the output ...
  3. Balanced Budget

    A situation in financial planning or the budgeting process where ...
  4. Revenue Deficit

    When the net amount received (revenues less expenditures) falls ...
  5. Budget

    An estimation of the revenue and expenses over a specified future ...
  6. Capital Expenditure (CAPEX)

    Funds used by a company to acquire or upgrade physical assets ...
RELATED FAQS
  1. How is accounting in the United States different from international accounting?

    Despite major efforts by the Financial Accounting Standards Board, or FASB, and the International Accounting Standards Board, ... Read Full Answer >>
  2. What is the variance/covariance matrix or parametric method in Value at Risk (VaR)?

    The parametric method, also known as the variance-covariance method, is a risk management technique for calculating the value ... Read Full Answer >>
  3. What is backtesting in Value at Risk (VaR)?

    The value at risk is a statistical risk management technique that monitors and quantifies the risk level associated with ... Read Full Answer >>
  4. How are transfer prices set?

    The United States, like most nations, does not want to allow transfer pricing methods that reduce the amount of taxes the ... Read Full Answer >>
  5. How do I discount Free Cash Flow to the Firm (FCFF)?

    Discounted free cash flow for the firm (FCFF) should be equal to all of the cash inflows and outflows, adjusted to present ... Read Full Answer >>
  6. What are some examples of inherent risk?

    In financial and managerial accounting, inherent risk is defined as the possibility of incorrect or misleading information ... Read Full Answer >>
Related Articles
  1. Entrepreneurship

    Six Steps To A Better Business Budget

    This easy but essential process helps owners ensure that their businesses can stay afloat.
  2. Budgeting

    How Budgeting Works For Companies

    Learn how to break down and understand a corporate budget.
  3. Economics

    Understanding Carrying Value

    Carrying value is the value of an asset as listed on a company’s balance sheet. Carrying value is the same as book value.
  4. Economics

    International Financial Reporting Standards (IFRS)

    International Financial Reporting Standards are accounting rules and guidelines governing the reporting of different types of accounting transactions.
  5. Economics

    Explaining Property, Plant and Equipment

    Property, plant and equipment are company assets that are vital to business operations, but not easily liquidated.
  6. Economics

    How to Calculate Trailing 12 Months Income

    Trailing 12 months refers to the most recently completed one-year period of a company’s financial performance.
  7. Economics

    What is Unearned Revenue?

    Unearned revenue can be thought of as a "pre-payment" for goods or services which a person or company is expected to produce to the purchaser.
  8. Budgeting

    Budget-Stretching Gardening Tips

    A bakers dozen of easy, budget-stretching garden ideas just in time for spring and summer planting.
  9. Economics

    What is a Capital Lease?

    A lease considered to have the economic characteristics of asset ownership.
  10. Budgeting

    An Analysis Of The US Trade Deficit

    The United States' trade deficit is historically large, the biggest in the world. With luck, it'll get even larger.

You May Also Like

Hot Definitions
  1. Venture-Capital-Backed IPO

    The selling to the public of shares in a company that has previously been funded primarily by private investors. The alternative ...
  2. Merger Arbitrage

    A hedge fund strategy in which the stocks of two merging companies are simultaneously bought and sold to create a riskless ...
  3. Market Failure

    An economic term that encompasses a situation where, in any given market, the quantity of a product demanded by consumers ...
  4. Unsystematic Risk

    Company or industry specific risk that is inherent in each investment. The amount of unsystematic risk can be reduced through ...
  5. Security Market Line - SML

    A line that graphs the systematic, or market, risk versus return of the whole market at a certain time and shows all risky ...
  6. Tangible Net Worth

    A measure of the physical worth of a company, which does not include any value derived from intangible assets such as copyrights, ...
Trading Center