1. 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

2. 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 (______________________________)
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3. 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

4. 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
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5. Chapter 9

6. 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
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7. Chapter 9

8. 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

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
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10. Chapter 9

11. 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.
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12. 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
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13. Economic Effects on Cash Flow
Changes in the economy can dramatically effect the cash flow of businesses.
Business owners should make ______________________.
Chapter 9

14. What does a cash flow statement show?
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15. Income Statement income statement
shows revenues and expenses incurred over a period of time
shows the _________ or __________ for the time period
Chapter 9

16. 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
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17. 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.
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18. 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 __________
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19. 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

20. The pro forma income statement consists of:
_______________
Cost of goods sold
Gross profit
Operating expenses
Net income before taxes
_____________
Net income/loss after taxes
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21. 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
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22. 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)
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23. 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
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24. Chapter 9

25. What does an income statement show?
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26. 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
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27. Balance Sheet Assets are items of value owned by a business
Cash
___________________
Inventory
Liabilities are amounts that a business owes to others
__________________
Outstanding invoices
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28. 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 ___________________
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29. Prepare a Pro Forma Balance Sheet
You must __________ the amount of assets, liabilities, uncollectible accounts, and asset depreciation
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30. 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
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31. 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
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32. 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
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33. Chapter 9

34. 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-
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35. 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