One of the most important, yet most under-utilized features in QuickBooks is the ability to create Budgets for your company. Also you have the ability to track actual performance against the budget for both the Profit & Loss and Balance Sheet. Additionally, there are some excellent reports and graphical representations as well.
Planning & Budgeting is an option under the drop-down menu in your QuickBooks file. Depending on which industry specific version you’re using, it is under a different heading. We are using the Accountant Version so it is under the Company drop-down. Company > Planning & Budgeting > Setup Budgets.
Creating a Budget in QuickBooks
In the example below you can see we are creating a budget for the Profit & Loss by Account. It’s important to note that this budget will display your chart of accounts as it exists (i.e. any account that is active). If you’re starting a budget from scratch try to ensure all of the accounts you will need are already setup. If not, you’ll have to go back and forth adding the accounts to your chart of accounts and then back to your budget to populate accordingly. That can be frustrating to say the least.
Let’s show you how the data entry works assuming you’re creating from scratch and not using numbers from a previous year (an option during the setup). In this case we are going to budget $50 per month for Interest Expense. Using the “Copy Across” button on the bottom left you merely enter the $50 in January and copy across. This saves a lot of data entry time. Of course you can always edit any given month if the expense is going to be higher or lower. This is also true for any Revenue line item.
QuickBooks Report Center
Now let’s assume the budget is complete so we can look at some the reports available in QuickBooks. These reports are generated from the day to day bookkeeping so no extra work is required. There are multiple ways to get to these reports, but today we’ll use the “Report Center.”
Once in the Report Center you will see several tabs across the top. In the “Standard” tab you will see a listing of report categories. Choose the Budgets & Forecasts to get the following display. You immediately get a visual of what the reports will look like. You can run the report, get additional information on what the report actually does and also you can click on the heart icon to save the report in your Favorites. You will want to do this after you have filtered the report just the way you want it to be. How you save it as a Favorite or a Memorized Report is how it will be displayed once you bring this report up at a later date.
Budget vs. Actual Report
Now let’s take a look a look at one of the best reports in QuickBooks, the Budget vs Actual.
In this report we’ll focus on a few specific items. We have run this report just for January and have included the options of displaying the $ Over Budget as well as % of Budget. Both of these are optional. As we zero in on Labor Income, we can see we are $8700 over Budget or 202%. Egads! As you can see by just this one simple line item, this is a very powerful report that will allow management/ownership to make real-time decisions based on actual performance.
The other reports available are the Budget Overview which shows you what your forecasted revenue and expenses are by month. The Profit & Loss Budget Performance Report in my opinion needs a lot of work. We never use it and I don’t recommend it because of the confusing logic behind the report. As always, anything graphical is nice so the Budget vs Actual Graph has many uses.