17

Pro-Forma Financial Statements

Goals:

• Understand the purpose and structure of an income statement and balance sheet
• Develop pro-forma income statements and balance sheet for student business

Skills:

• Ability to classify financial elements as assets, liabilities, owner's equity, income, or expenses
• Present financial data in properly format income statements and balance sheet

Overview:

This chapter requires students to develop pro-forma financial statements. Since there are no historical financial transactions to use when preparing a forward looking financial projection, the normal accounting process which involves journals, posting, ledgers, and reconciliation does not apply.

The students will use the data contained in their Cash Flow Analysis to develop their pro-forma financial statements. In order to do this, students develop a pragmatic understanding of assets, liabilities, owner's equity, income, and expenses. They discuss the management purpose of the balance sheet and income statement including the meaning of each financial element.