ANSWERS: 1
  • Pro forma accounting is a useful tool for any business. Understanding what this type of accounting is will help you unlock its potential and grow your business well into the future.

    Function

    Pro forma accounting helps you develop a business plan for the future by giving you an idea of how your business is expected to perform during the year.

    Benefits

    Using pro forma accounting helps a company know when to expect the peaks and troughs of its business cycle. Pro forma accounting also gives a company a benchmark to evaluate its performance throughout the year.

    Time Frame

    Pro forma accounting is typically performed before the period of the report. That is, if you are running pro forma income statements for the next year, you will complete them prior to the end of the current year.

    Creation

    To create pro forma income statements, consult your previous year financial statements. Use your historical patterns to build assumptions, taking into consideration changes in the economy and in your industry.

    Caution

    Pro forma accounting isn't set in stone. You should review your estimates at several points throughout the year as circumstances change in order to reap the most benefit out of pro forma accounting.

    Source:

    Business Town

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