Lesson 9.2 Pro Forma Financial Statements Goals Prepare a pro forma cash flow statement. Prepare a pro forma income statement. Prepare pro forma balance sheet. Chapter 9

Cash Flow Statement cash flow statement an accounting report that describes the way ________ flows into and out of your business over a period of time The amount of cash coming in is your revenue.(________________) The amount of cash going out is your expense (______________________________) Chapter 9

Forecast Receipts and Disbursements To create a pro forma cash flow statement, you will need to _________: monthly cash receipts (revenues) monthly cash disbursements (expenses) Chapter 9

Cash Flow Statement Cash receipts (revenue) include: Cash sales, collected accounts receivable, ____________, and funds from bank loans and investors You will need to analyze the ___________ for each of your products and services You will also need to know the price you will charge for each item Chapter 1

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Cash Flow Statement Cash disbursements may include: Payments for cost of goods (what you pay manufacturers or wholesalers to get products and services to sell) accounts payable ____________ Salaries Taxes office supplies Insurance Advertising Loans other expenses Chapter 1

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Prepare the Cash Flow Statement After making projections of revenues and expenses, you are ready to prepare the cash flow statement. You should create monthly pro forma cash flow statements for the _____________________ and annual statements for the second and third years to give your lender and accurate picture of your cash flow over time. Chapter 9

Cash Flow Statement net cash flow = cash receipts ─ cash disbursements Pro forma statements help you anticipate when _____________ cash flows will occur. You can plan how to handle or avoid them You may need to borrow money Chapter 1

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Cash Flow Statement Note: Operating expenses exceed revenues during the first few months of operation. The cash flow for Walters Electric will be negative because her sales will be low and some expenses will be high. Chapter 1

Cash Flow Statement Many entrepreneurs create two types of cash flow statements ____________________—project lower revenues and higher expenses than you think you will have Will help you identify how much cash you will need if your business does worse than expected _________________-project the highest revenues and the lowest expenses your business is likely to have Will show you how much cash you will have if your business does better than expected Chapter 1

Economic Effects on Cash Flow Changes in the economy can dramatically effect the cash flow of businesses. Business owners should make ______________________. Chapter 9

What does a cash flow statement show? Chapter 1

Income Statement income statement shows revenues and expenses incurred over a period of time shows the _________ or __________ for the time period Chapter 9

Income Statement Can help you do the following: Examine how sales, expenses, and income are ___________ over time Forecast how well your business can expect to perform in the future Analyze your costs to determine where you may need to cut back Identify categories of expenditures you may want to increase or decrease, such as advertising Chapter 1

Income Statement The cash flow statement deals with _________ cash coming in and going out. It shows when you actually make a payment on an invoice or when you receive money due to you from a customer. The income statement shows revenues you have not received and expenses you have not paid yet. It is a ____________________ at the financial stability of your business. Chapter 1

Income Statement Suppose Walters Electric sells $5,000 worth of lighting in June. The company’s monthly income statement would show income of $5,000 but Felicia may not actually have received $5,000 because: Customers may have asked to be billed. Felicia will not receive their payments until July or August. Some customers may never pay their bills Because not all business transactions are paid for immediately, the income statement and the cash flow statement usually will be __________ Chapter 1

Prepare a Pro Forma Income Statement The ___________________ of your business can be demonstrated by a pro forma income statement prepared for multiple years. Most businesses choose a year as the period measured by an income statement New businesses often view their income statement _______ in order to determine whether a profit is being made Chapter 9

The pro forma income statement consists of: _______________ Cost of goods sold Gross profit Operating expenses Net income before taxes _____________ Net income/loss after taxes Chapter 9

Income Statement Revenue—dollar value of goods or services a business sells Cost of goods sold—cost of ___________ a business sells (only businesses that have inventory will have this item on their income statements) Gross profit—the difference between revenue and cost of goods sold Chapter 1

Income Statement Operating expenses—the expenses necessary to operate a business. Including: salaries, rent, utilities, advertising, insurance, supplies, and other expenses _________________________—amount remaining after cost of goods sold and operating expenses are subtracted from revenue (the amount you earned before taxes) Chapter 1

Income Statement Taxes—usually listed separately from other expenses Net income/loss after taxes—after taxes are __________, the result is the net income or loss for the period Chapter 1

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What does an income statement show? Chapter 1

Balance Sheet balance sheet assets = liabilities + owner’s equity a financial statement that lists what a business ____________ how much a business is worth at a point in time assets = liabilities + owner’s equity Chapter 9

Balance Sheet Assets are items of value owned by a business Cash ___________________ Inventory Liabilities are amounts that a business owes to others __________________ Outstanding invoices Chapter 1

Balance Sheet _________________ is the amount remaining after the value of all liabilities is subtracted from the value of all assets A business that has more assets than liabilities has positive net worth A business that has more liabilities than assets has ___________________ Chapter 1

Prepare a Pro Forma Balance Sheet You must __________ the amount of assets, liabilities, uncollectible accounts, and asset depreciation Chapter 1

Prepare a Pro Forma Balance Sheet Types of Assets current assets (__________________) can be converted to cash easily Examples: cash, inventory, and items that are used up in normal business operations accounts receivable (another type of current asset) the amounts owed to a business by its ________________ fixed assets cannot be converted into cash easily Examples: buildings, furniture, and computers Chapter 9

Types of Liabilities long-term liabilities current liabilities debts that are payable over a _________ or longer Example: Mortgage current liabilities debts that must be paid in full in ______________ accounts payable (special kind of current liability) amounts owed to vendors for merchandise purchased on credit Chapter 9

allowance for uncollectible accounts Reductions in Assets allowance for uncollectible accounts the amount a company estimates it will _______ ______________ from customers depreciation the _____________ of an asset’s value to reflect its current worth Equipment in your business will depreciate over time just as a car loses value year after year Estimates for uncollectible accounts and depreciation should be included to provide an accurate picture of a business’s net worth Chapter 9

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Open your Chapter 9 Assessment questions Open your Chapter 9 Assessment questions. Complete the table below and add to your Chapter 9 Assessment. Description Example Current (liquid) asset- Fixed (illiquid) asset- Current liability- Long-term liability- Chapter 1

9.2 Assessment Questions Directions: Open your Chapter 9 Assessment questions. Complete the 9.2 Think About It questions on page 262. Type the questions and bold your answers. Save and upload. Chapter 1