Actuals

"Actuals" in accounting refers to the financial results of a company's operations that have already occurred, as opposed to budgeted or forecasted amounts. It assesses the company's performance, identifies variances, and takes corrective actions.

Actuals aim to provide a factual basis for decision-making and financial reporting and to ensure that financial statements accurately reflect a company's financial performance. Therefore, actuals are essential for preparing financial information, which provides a comprehensive picture of a company's financial situation.

• Actuals represent the actual financial results of a company's operations that have already occurred.
• It evaluates a company's financial performance about its goals, plans, and expectations.
• These are typically compared to budgeted or forecasted amounts to assess performance and identify variances.
• It identifies areas for improvement and makes adjustments to improve financial performance in future periods.

Actuals in accounting originate from the need for accurate and reliable financial information to make informed decisions. Accounting information provides a systematic way of recording and reporting the financial transactions of a business, which helps stakeholders evaluate its financial performance and make decisions.

The relevance of actuals in accounting is that it provides a basis for evaluating a company's financial performance about its goals, plans, and expectations. By comparing actual results with budgeted or forecasted amounts, stakeholders can assess how well a company executes its strategies and whether it is on track to meet its goals.

However, it is essential to note that actuals do not provide a complete picture of a company's financial performance. Other factors, such as market conditions, economic trends, and industry-specific factors, can influence a company's financial results. Therefore, it is essential to interpret actuals in the broader business environment and use them as part of a comprehensive financial information set to make informed decisions.

Let us understand the concept better with the help of some examples:

Example #1

Suppose a a company named ABC Corporation, creates an annual budget projecting $10 million in revenue for the upcoming year. However, at the end of the year, ABC Corporation's actual income is only $9 million. This means that the actual payment is $1 million less than the budgeted amount, and the company will need to investigate and address the reasons for the shortfall to improve performance in the future.

Example #2

According to Tesla’s first quarter 2021 financial results, its revenue was $10.4 billion, higher than the expected $10.3 billion. In addition, the company's basic net income for the quarter was $438 million, which was also higher than the expected net income of $418 million. The company's stock price rose in response to the positive financial results, indicating the importance of actuals in financial markets and decision-making.

To clarify, "removing actuals" from accounting is not a typical or recommended practice as it would distort financial information and could mislead stakeholders who rely on it for decision-making. However, if you need to adjust actuals in your financial reporting, you can use accounting adjustments such as accruals or deferrals.

Here are the general steps for making adjustments to actuals in accounting:

1. Identify the transaction or event that requires an adjustment: This may be a revenue or expense that has been incorrect or a marketing that has occurred but has not yet been recorded.
2. Determine the appropriate accounting adjustment: The adjustment will be based on the nature of the transaction or event. For example, suppose a customer has paid in advance for goods or services that will be provided. In that case, you may need to record an unearned revenue liability until the goods or services are provided.
3. Record the accounting adjustment: Once you have determined the appropriate adjustment, you must record it in your accounting system. This could involve making entries in your general ledger, adjusting journal entries, or other accounting adjustments.
4. Review the impact of the adjustment: After adjusting, you should review the impact on your financial statements to ensure accuracy and comply with accounting principles and standards.
5. Document the adjustment: It is essential to document the accounting adjustment and its reasons in case it needs to be reviewed or audited.

Here is a more detailed comparison between actuals, budget, and accruals in accounting:

#1 - Definition

Actuals represent the actual financial results of a company's operations that have already occurred. At the same time, a budget is a financial plan that projects expected revenues, expenses, and profits for a future period, typically a year. At the same time, accruals are accounting adjustments made to account for transactions that have occurred but have yet to be recorded.

#2 - Purpose

Actuals evaluate a company's financial performance, compare to budgeted or forecasted amounts and prepare financial statements. While budgets plan and allocate resources, set goals and objectives, monitor progress toward achieving those goals, and compare to actual results to assess performance. Accruals recognize revenue or expenses earned or incurred, regardless of when cash is received or paid, to provide a more accurate picture of a company's financial performance.

#3 - Timing

Actuals reflect past financial results that have already occurred. At the same time, budgets are future-oriented and represent projected financial results. At the same time, accruals are made at the end of an accounting period to recognize revenue or expenses that have occurred but have yet to be recorded.

#4 - Nature

Actuals represent actual financial results, varying from budgeted or forecasted amounts due to various factors. At the same time, budgets mean expected financial results based on assumptions about future events and conditions. Finally, accruals are adjustments made to recognize revenue or expenses that have already occurred but have yet to be recorded to provide a more accurate picture of a company's financial performance.

#5 - Impact On Financial Statements

Actuals prepare financial statements, which reflect past financial performance. At the same time, budgets compare actual results in financial statements to assess performance and make adjustments if needed. Finally, accruals adjust financial statements to reflect revenue or expenses.

Here is a comparison between actuals and forecasts in accounting:

#1 - Definition

Actuals represent the actual financial results of a company's operations that have already occurred. At the same time, a forecast estimates expected financial results for a future period, typically based on assumptions about future events and conditions.

#2 - Purpose

Actuals evaluate a company's financial performance and prepare financial statements. Whereas forecasts anticipate and plan for future financial performance, set goals and objectives, and make informed decisions.

#3 - Timing

Actuals reflect past financial results that have already occurred. At the same time, forecasts look into the future and represent projected financial results.

#4 - Nature

Actuals represent actual financial results. At the same time, forecasts illustrate estimated financial results that are subject to change based on actual results and business conditions.

#5 - Accuracy

Actuals represent actual financial results, considered the most accurate information available. At the same time, forecasts are based on assumptions and estimates and may not always accurately predict future financial results.

#6 - Usefulness

Actuals provide a basis for evaluating a company's financial performance and preparing financial statements, which help make informed decisions. Whereas forecasts offer a basis for anticipating and planning for future financial performance, setting goals and objectives, and making informed decisions.

This article has been a guide to Actuals and its definition. We compare it with the budget, forecast, accruals, explain how to remove it and its examples. You may also find some helpful articles here -

• Leading Indicators
• Rolling Budget
• Cost Overrun