A pro forma income statement is planned and prepared in advance to of a transaction to project the future status of the company.
Draft a pro forma income statement
The measurement of the decline in value of assets. Not to be confused with impairment, which is the measurement of the unplanned, extraordinary decline in value of assets.
For the sake of form only.
The term written-off describes a reduction in recognized value. In accounting terminology, it refers to recognition of the reduced or zero value of an asset.
The term pro forma, Latin for "as a matter of form" or "for the sake of form", is a term applied to practices or documents that are done as a pure formality, perfunctorily, or seek to satisfy the minimum requirements or to conform to a convention or doctrine. It has different meanings in different fields.
Pro forma financial statements are prepared in advance of a planned transaction, such as a merger, an acquisition, a new capital investment, or a change in capital structure like an incurrence of new debt or issuance of equity.
The pro forma models the anticipated results of the transaction, with particular emphasis on the projected cash flows, net revenues and (for taxable entities) taxes. Consequently, pro forma statements summarize the projected future status of a company, based on the current financial statements. For example, when a transaction with a material effect on a company's financial condition is contemplated, the Finance Department will prepare, for management and Board review, a business plan containing pro forma financial statements demonstrating the expected effect of the proposed transaction on the company's financial viability. Lenders and investors will require such statements to structure or confirm compliance with debt covenants, such as debt service reserve coverage and debt to equity ratios. Similarly, when a new corporation is envisioned, its founders will prepare pro forma financial statements for the information of prospective investors.
Pro forma accounting is a statement of the company's financial activities while excluding "unusual and nonrecurring transactions" when stating how much money the company actually made. Expenses often excluded from pro forma results include company restructuring costs, a decline in the value of the company's investments, or other accounting charges, such as adjusting the current balance sheet to fix faulty accounting practices in previous years.
The income statement is a company's financial statement that indicates how the revenue is transformed into the net income (the result after all revenues and expenses have been accounted for, also known as Net Profit or the "bottom line"). It displays the revenues recognized for a specific period, and the cost and expenses charged against these revenues, including write-offs (e.g., depreciation and amortization of various assets) and taxes.
Pro forma figures should be clearly labeled as such and the reason for any deviation from reported past figures clearly explained. A pro formaIncome statement could be planned and prepared in advance, which includes the items below:
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