InvestorQ : What do you mean by negative budget variance?
Sneha Balasubramanian made post

What do you mean by negative budget variance?

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natasha Samani answered.
1 month ago

Governments, corporations, or individuals use one of the periodic measures called Budget Variance. This is used to quantify the difference between budgeted and actual figures for a particular accounting category.

Here, A positive variance= favorable budget variance &
A negative variance = unfavorable budget variance or losses/shortfalls.
When forecasters find it difficult to predict future costs and revenue with expected accuracy, Budget variances come into the picture,.Budget variances can be due to either controlled or uncontrollable factors.

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Priyanka Singh answered.
1 month ago

Budget variance is the difference between expenses and revenue in your financial budget and the actual costs. When revenue is higher than the budget or the actual expenses are less than the budget, this is considered a favorable variance. A negative variance means results fell short of budget, and either revenue was lower than expected or expenses were higher than expected.

A budget is prepared using assumptions about the business environment the company will be operating in over the course of the year. If the assumptions are wrong, chances are that actual results will vary from the budget. Inaccurate budgets, be they derived from an abundance of optimism or a lack of data, lead to unrealistic expectations and frequent inaccuracies. Frequent and severe budget variances are an indicator that a budget audit and re-estimation is required.