Account Variance looks at every income and expense account on your client's Profit and Loss and works out how far this month's activity has moved from what that account normally does. This page explains what it is for and how the number is calculated.
What Account Variance is for
It catches an account behaving unlike itself. In practice that means the things which are wrong but would not otherwise be spotted until someone sat down and reviewed the P&L:
A cost that suddenly jumps. A duplicate bill, a price rise nobody approved, or a transaction coded to the wrong account.
A cost that vanishes. Rent, insurance or a subscription that was not posted at all this month.
Income falling away on a particular revenue account.
A suspense or clearing account that should be sitting at zero and is not.
"Activity" here means the account's movement for that month, not a running balance. There is one row per account per month.
It only runs when you build a rule
Account Variance does not raise anything on its own. It is a data area for Custom XBerts, so nothing happens until someone writes a rule against it, for example:
Alert me when any expense account increases by more than 20% against its baseline.
Alert me when an account with "suspense" in its name has a balance greater than $0 and it is not the current month.
If you are not seeing variance alerts, that is why. There is no default threshold to turn on.
How the calculation works
For each account, each month, XBert does three things:
Picks the baseline. Whichever is higher: the previous month's activity, or the average monthly activity across the trailing 12 months.
Works out the variance amount. This month's activity, minus that baseline.
Works out the variance percentage. The variance amount divided by that same baseline.
A negative figure means the account is down against its baseline. If the baseline works out to zero, the variance is reported as zero rather than a meaningless percentage.
A worked example
An Office Expenses account with $5,000 of activity this month:
| Amount |
This month's activity | $5,000 |
Previous month | $6,500 |
12-month average | $4,000 |
Baseline (the higher of the two) | $6,500 |
Variance amount | -$1,500 |
Variance | -23.08% |
Note that the account is above its 12-month average yet still shows a negative variance, because last month was the higher figure and so became the baseline.
Why the baseline is the higher of the two
Each measure on its own has a weakness:
The 12-month average smooths out seasonal swings and one-off months, but it is slow to reflect a genuine recent change in the business.
The previous month picks up a recent shift straight away, but a single unusual month makes a poor yardstick.
Taking whichever is higher means the bar is set by the more demanding of the two. An account that has recently spiked is measured against that spike rather than a comfortable long-run average, so a genuine increase has to be substantial before it shows as a large positive variance. It also means that a return to normal after an unusual month shows up as a negative variance, which is exactly what the example above is doing.
Which figures it uses
The Profit and Loss is read on an accrual basis. This is fixed, and does not follow the client's own reporting basis. If your client reports on a cash basis, the amounts behind their variance figures will not match the P&L they are used to looking at.
A trailing 3-month average is also recorded against every account, but it is not part of the calculation above. It is available as an extra figure you can reference in a Custom XBert if a shorter baseline suits what you are checking.
đ Read more here: Account Variance for the full list of fields available when building a Custom XBert on this data.
Need help?
If you have any questions, our support team is here to help!
Reach out via the chat widget on the bottom left of your XBert screen (Help), or email us at support@xbert.io