Lesson 22 - Variance Report Flashcards
What is a variance report?
An accounting report that compares actual and budgeted figures, highlighting variances so that problems can be identified, and corrective action taken.
What are the two terms used to describe differences between the actual and budgeted figures in a variance report?
Variance is the difference between the actual figure and a budgeted figure, expressed as ‘favourable’ or ‘unfavourable’.
A favourable variance is considered…
A good result. This will have a beneficial impact on the businesses finances/bank account.
An unfavourable variance is considered…
A bad result. This will have a negative impact on the businesses finances/bank account.
A variance report compares…
Budgeted figures with actual figures.
True or False: A variance report is a financial statement that shows the difference between actual and budgeted amounts.
True. A variance report is used to compare actual financial results with the budgeted or expected amounts.
True or False: A favorable variance occurs when actual expenses are higher than budgeted expenses.
False. A favorable variance occurs when actual expenses are lower than budgeted expenses.
True or False: Variance reports are primarily used for historical analysis and have no impact on future decision-making.
False. Variance reports are used for both historical analysis and future decision-making, as they help identify areas that require corrective action.
True or False: Variance analysis is only applicable to expenses and does not apply to revenue.
False. Variance analysis applies to both expenses and revenue. Positive revenue variances are typically favorable, while negative variances are unfavorable.
True or False: An unfavorable variance is always a sign of poor performance or a problem.
False. An unfavorable variance may indicate a problem, but it can also result from changes in external factors beyond a company’s control.
True or False: Variance reports are only relevant for large corporations and are not useful for small businesses.
False. Variance reports can be useful for businesses of all sizes to assess financial performance and make improvements.
True or False: Variance reports are typically prepared on an annual basis for external reporting purposes.
False. Variance reports can be prepared on various timeframes, including monthly, quarterly, or annually, depending on the needs of the organization.
True or False: Variance reports provide a holistic view of financial performance and are the only tool needed for performance evaluation.
False. Variance reports provide valuable insights, but they should be used in conjunction with other financial analysis tools and reports to gain a comprehensive understanding of performance.
