# What do negative variances indicate?

## Definition of Negative Variances on Accounting Reports

Negative variances are the unfavorable differences between two amounts, such as:

• The amount by which actual revenues were less than the budgeted revenues
• The amount by which actual expenses were greater than the budgeted expenses
• The amount by which actual net income was less than the budgeted net income
• The amount by which current revenues were less than the previous year's revenues
• The amount by which actual expenses were greater than the previous year's expenses
• The amount by which the actual net income was less than the budgeted net income

The negative variances, which are unfavorable in terms of a company's profits, are usually presented in parentheses. On the other hand, positive variances in terms of a company's profits are presented without parentheses.

## Examples of Negative Variances on Accounting Reports

Assume that a company had the following following information for a recent month:

• Budgeted revenues of \$30,000
• Budgeted expenses of \$22,000
• Budgeted net income of \$8,000
• Actual revenues of \$28,500
• Actual expenses of \$20,800
• Actual net income of \$7,700

Based on the above information, the company's will be reported as shown here:

• Revenues variance: (\$1,500). The amount is a negative or unfavorable variance because the actual revenues were \$28,500 instead of the budgeted revenues of \$30,000. The difference of \$1,500 is unfavorable for the company's profitability.
• Expenses variance: \$1,200. The amount is a positive or favorable variance because the actual expenses of \$20,800 are less than the budgeted expenses of \$22,000. The difference of \$1,200 is favorable for the company's profitability.
• Net income variance: (\$300). The amount is a negative or unfavorable variance because the actual net income of \$7,700 is less than the budgeted net income of \$8,000. The difference of (\$300) is an unfavorable outcome for the company. The amount also agrees with the combination of the unfavorable revenues variance of (\$1,500) and the positive expenses variance of \$1,200.

To assist the readers of the accounting reports with variances being reported to indicate on the report: "( ) = an unfavorable effect on net income."