--- title: "How to Explain Month-Over-Month Variances in Your Books" description: "A short method for reviewing a profit and loss against last month: which changes to chase, how to write the explanation, and when a variance means an error." url: "https://mcc-solutionsnj.com/bookkeeping/guides/how-to-explain-month-over-month-variances" --- Bookkeeping guide · Updated October 26, 2026 # How to Explain Month-Over-Month Variances in Your Books A variance review compares this month to last month, or to a budget, and asks why each line moved. It is the quickest way to catch mistakes and the best way to understand your business. By [Matthew Coleman](/about), MCC Solutions Want this handled for you? Monthly bookkeeping, cleanup and year-end close for small businesses. Start with a free health check of your books. [Free health check](/bookkeeping/health-check)[Get a quote](/bookkeeping/#interest) **Related:** [Trial balance explained](/bookkeeping/guides/trial-balance-explained) · [Owner contribution or loan](/bookkeeping/guides/owner-equity-and-capital-contributions) · [Closing entries and retained earnings](/bookkeeping/guides/closing-entries-and-retained-earnings) **Free tools:** [What should I charge per hour?](/bookkeeping/freelance-hourly-rate-calculator) · [Depreciation schedule calculator](/bookkeeping/depreciation-calculator) [![Intuit ProAdvisor Gold tier badge](/img/credentials/intuit-proadvisor-gold.png)](https://proadvisor.intuit.com/app/accountant/search?searchId=matthew-coleman77)Gold tier in Intuit's ProAdvisor program. [See my Intuit listing](https://proadvisor.intuit.com/app/accountant/search?searchId=matthew-coleman77) Keeping your own books? Tallyfinch does invoices, bank import and reports on your computer. [See Tallyfinch](/bookkeeping/mcc-books-downloadable-bookkeeping-software) ## Why review variances at all Most bookkeeping errors show up as a strange number: a utility bill that doubled, a revenue line that dropped to zero, a category that suddenly holds a vendor it never held before. A review catches these before they reach a report you hand someone. The same review shows real changes, such as a price increase that is paying off. Both kinds of change need an explanation. ## Choose thresholds so you look at what matters Looking at every line wastes time. Set two thresholds, a percentage and a dollar amount, and flag a line only when it passes both. A 60 percent jump on a $20 line is noise. A 15 percent change on a $20,000 line is not. The thresholds belong to you. Start with something reasonable for your size and adjust after a couple of months. ## Ask the same four questions of each flagged line Is it timing? A bill paid early or late moves cost between months without changing the year. Is it a one-time item? A repair, an annual fee or a refund. Is it a real change, such as a new customer or a price change? Or is it an error, such as a duplicate or a wrong category? Write the answer in one sentence next to the line. If you cannot answer, look at the transactions, not the total. ## Write explanations that someone else can read Say what happened, not that a number went up. 'Insurance up because the annual premium posted in March instead of January' is useful. 'Higher than last month' is not. Include the amount, the cause and whether it will repeat. Keep the notes with the close. Next year you will not remember. ## A worked example of a note Suppose office supplies jumped from $180 to $640. You open the transactions and find a $420 monitor bought in March. The note reads: monitor purchase, one-time, will not repeat, ask the CPA whether it is a fixed asset. Three short facts turn an alarming number into a closed question. Now suppose revenue fell by a third. You open the sales and find a week of deposits that were never recorded because a bank feed disconnected. That one is an error, and the note says so and records the fix. The same review caught both. ## Know when a variance means a mistake A zero where you expect revenue, a negative expense, an expense in an account you do not use, or a balance sheet item that moved with no cash behind it deserve a look at the entries. Check the bank feed for duplicates and for transactions posted to the wrong period. A workbook that flags only lines past both thresholds, and keeps flagging them until you write the explanation, makes the habit stick. The Month-End Close Workbook on this site has a flux tab built that way, and your CPA can tell you what level of review your situation needs. ## Common questions **Should I compare to last month or last year?** Use both when you can. Last month shows what changed lately. Last year shows seasonal patterns. **What about budget variances?** The method is the same. Compare to the budget and explain the lines that miss it by more than your thresholds. **How often should I do this?** Once a month, as part of the close. This guide is general information, not tax, legal or accounting advice. Rules, fees and due dates change; check with the IRS, the NJ Division of Taxation or a licensed professional for your situation. Let us handle it [### Monthly bookkeeping Categorizing, reconciling and monthly reports, with cleanup, payroll and NJ filings available. Bookkeeping →](/bookkeeping/) [### QuickBooks Online Monthly bookkeeping, cleanup and reconciliation in QuickBooks Online for New Jersey small businesses. Your account stays in your name. 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Xero →](/bookkeeping/software/xero) More guides - [Occupancy vs Net Per Night: What Makes a Rental Profitable](/bookkeeping/guides/occupancy-vs-net-per-night-airbnb-profit) - [Contractor Offer vs Salary: What the Hourly Rate Is Worth](/bookkeeping/guides/contractor-offer-vs-salary-what-it-is-worth) - [A Client Onboarding Process for a Solo Bookkeeper](/bookkeeping/guides/client-onboarding-process-for-a-solo-bookkeeper) - [A Lead Follow-Up System for a Solo Service Business](/bookkeeping/guides/lead-follow-up-system-for-a-solo-service-business) Free tool - [Bookkeeping health check](/bookkeeping/health-check) Related - [Month-End Close Workbook (Excel)](/toolkits/month-end-close-workbook) - [Monthly bookkeeping close checklist](/bookkeeping/guides/monthly-bookkeeping-close-checklist) - [SaaS month-end close checklist](/bookkeeping/guides/saas-month-end-close-checklist) [All guides](/bookkeeping/guides) Reach small business owners, freelancers and bookkeepers who read this guide: [advertise here](/advertise#bookkeeping). 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