If you have a company, you should know how to prepare proforma financial statements, as it is part of accounting and as such it is essential to prepare it.
But do you know exactly what they are? Do you want to know from an example? What are the projected ones? Well, all this you are about to know if you keep reading….
What is involved in the preparation of financial statements
The financial statements comprise:
- Previously, it is necessary to make a general balance, registering capital stock with your account receivable and bank account.
- The prior development of cash flows with the entry and exit of the previous pro forma balance sheet.
- Initially, a general balance sheet is prepared with the record of purchase of fixed assets.
- The preparation of a pro forma cash flow statement with the entry and exit of purchases of fixed assets.
- Taking into account the first period of the business with its opening of activities, the proforma income statements begin with the preparation of the proforma cash flow statement and the proforma balance sheet.
- Support tables are created with details of operations including capital stock, amortization and depreciation, sales, cost of sales, administrative expenses, sales expenses and operating expenses. .
- It is also important to have the business operation plan with the policies for registration, according to the policies and decisions that are established in the project.
What is the objective of proforma financial statements
- The purpose of the pro forma financial statements is to provide information on the operations that have been carried out.
- While the statement of financial position shows the financial situation, the income statement shows how the loss or profit was generated.
- Within the financial situation, the statement of change shows the sources from which the resources were obtained and their application.
- In short, it retroactively shows the financial situation that could have been obtained if facts from the actual results were included and that could certainly have occurred at the time of preparing the statements.
What are proforma financial statements?
¿What are proforma financial statements?, Refers to data that is forecast one year in advance.
- It contains a hypothesis, a whole or part of a whole with the purpose of making known the possible financial situation or result of operations if they would occur.
- It contains real operations that demonstrate events after the date of the results figures.
- The events may have occurred to the date of the statements or there is a possibility that they will occur.
- If they were completed operations, they must have already been carried out. In fact, they are intended to provide information about the operations that were carried out.
- In other words, they are financial projections of an investment project and reveal the company’s need for future funds, the effects of its behavior in terms of income, expenses, costs, results, obtaining dividends and cash generation.
How to make example proforma financial statements?
To elaborate example financial statements as the following will serve you in your accounting for a specific company:
- The company… estimates its financial plans in view of the year….
- Taking the previous year as an information base, it makes the elaboration.
- Taking the percentage of sales method, prepare the proforma income statements.
- Based on the estimation calculation method, it prepares the pro forma balance sheet.
- Financial statements are prepared taking into account the income statement, for example:
- In a spreadsheet you will use two columns. In one column you will graduate as the Concept title and in the next the Value.
- Taking into account that the values are random under the concept you will enter: Sales income, in value you place 800; Under Sales revenue you will place Cost of sale and in value you will place 600.
- Under the cost of sale you will enter Gross Profit, it will give you 200 that you will place below 600.
- Under Gross profit you will enter -Operation cats and in value you will place 100.
- Under Trade tastes you will place Operating profit and in value you will enter 100.
- Under Operating Income you will place -Interest Expenses and in value you will enter 20.
- Under -Interest Expenses you will place Profit before taxes and in value you will enter 80.
- Under Profit before taxes you will place Taxes and in value you will enter 32.
- Under Taxes you will place Net Income and in value you will enter 48.
Another example is the following:
Assuming that a company estimates that in the next five years it will increase its sales by 10% each year.
To do this, you must make a projection of the financial statements based on that percentage.
But you also need to know by what proportion operating costs and administration expenses will increase based on knowing what percentage should increase.
The company must prepare the projected results account with costs, sales, amortizations and it will be an account that will have implications in the balance sheet, because due to the benefit the equity will be variable and due to the amortization the value of the assets will be reduced.
In this way, the financial situation at the end of a two-year period can be known, including a vision of problems that may occur when analyzing investments and future projected cash flow.
What is a proforma document?
1.Proforma documentWell, it is simply a commercial invoice. It is a document with the specification of the details of the future invoice.
- Thanks to this document, it demonstrates the seller’s commitment to provide the items specified in the document at the price it determines.
What are the projected financial statements?
- Projected financial statementsIt is a projection of the financial statements with the calculation that will be presented in the future of the company.
- It is done with a percentage of sales taking the effects that different variations may have on sales.