Definition:

Proforma financial statements are the projected or forecasting financial statements prepared by the company using a certain driver, conditions, form, or factors to projected the accounts balance or transactions of the proforma financial statements.

These financial statements are similar to the annual financial statements but are summary-level i.e. not too detailed.

  1. Pro forma income statement: A pro forma income statement or a budgeted income statement represents the standard or budgeted profit that the company expects to earn. It reports the budgeted turnover as per the sales budget, the cost of goods sold as per the production budget, and purchases budget, an estimated period costs or operating expense is then reported which includes bad debt expenses, salaries, and wages, depreciation, insurance, etc. The aftermath of all these processes is the pro forma or budgeted income statement.
  2. Pro forma balance sheet: A budgeted or pro forma balance sheet manifests the estimated assets, liabilities, and capital it expects to hold at the end of the coming year. The assets section constitutes of non-current and current assets. The capital budget is prepared as well which estimates the future cash flows of fixed assets that are going to be purchased and whether they’re beneficial for the company or not. Any such asset is included in the budgeted balance sheet as well along with its estimated depreciation and the previously fixed assets are reported as well. The current assets include accounts receivable which are budgeted by the sales department, cash and bank amount is extracted from the cash budget, the closing stock amount is extracted from the purchase budget, etc. Similarly, all the liabilities and equity is estimated and reported on the budgeted or pro forma balance sheet.
  3. Pro forma cash flow statement: A budgeted cash flow statement is different from the cash budget. The cash budget shows the monthly inflow and outflow of cash for every transaction whereas the budgeted cash flow statement starts with the operating profit amount given in the budgeted income statement. This is then converted into cash from operating activities by making working capital adjustments. Estimated net cash flow from investing and financing activities are added to it and the budgeted net cash flow of the company is reported on the pro forma cash flow statement.