How to Track Expenses

Use the budgeting process as a centralized tool to track expenses.

Most companies want to increase revenues and decrease costs. The first step to improving performance is to measure it. One of the tools most commonly used by financial analyst to track revenues and expenses is the budget. Specifically, analysts compare current expenses with the budget to perform a variance analysis. Those departments with the largest variance are expected to take measures to manage the variance. The budget, used in conjunction with variance analysis, is helpful in tracking business expenses.

Instructions

1. Obtain the most recent copy of the budget. It is best if the budget is monthly, however, it is okay if the budget is quarterly. The more detail you have about budgetary expenses the better.

2. Request a copy of the actual expenses by month or quarter. Actual expenses must be reported using the same accounts as the budget.

3. Compare the actual expenses to the budgeted expense for a variance analysis.

4. Identify the expense bucket with the largest variance from budget and then determine the department or group that is primarily responsible for that variance. Recommend ways for that group to reduce the variance going forward.

5. Track variances going forward and note those expenses that do not follow the budget. Be sure department heads are held accountable for making changes over time.

References

• Financial Management Development: Management Reporting; David A. Palmer; 2000