Your Budget Categories Should Follow Your General Ledger

If you prepare an annual budget, your budget should follow the same categories as your financial statements. This makes sense, but I see budgets that are prepared using categories that do not appear in the same way on the financial statements. For example, the budget shows a breakdown between online and offline advertising and the financial statements do not separate these numbers. Or you have financial statements showing revenue from residential or commercial activities and the budget is broken down by department.

If your budget and your financial statements are prepared using the same categories, then you have a very easy task of comparing actual results to budgeted results. You will be easily able to determine if your organization is achieving their budget or not. The monthly reports can be designed to show the actual results compared to budget by general ledger code. You do not need a lot of analysis of the actuals if the budget and the accounting system are using the same categories.

Any policy which makes it easier to compare actuals and budget will improve the usefulness of your budget, which is a worthy goal. Why prepare a budget if it is not going to be useful?

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