What Is Pro Forma Accounting?

Pro forma accounting statements include forecasts.

A company often needs to prepare pro forma financial statements in operating activities in the short term or long term. These statements are based on senior management's assumptions and estimations.

Definition

A pro forma financial statement is an accounting report in which top executives include forecasted information, data assumptions and estimations.

Significance

A pro forma financial statement is important for a firm in some business transactions, such as borrowing arrangements or short-term and long-term joint ventures.

Time Frame

A firm may prepare a pro forma financial statement at a given point in time, such as a pro forma balance sheet, or over a period of time, such as a pro forma income statement.

Pro Forma Balance Sheet

A pro forma balance sheet, also known as a pro forma statement of financial condition, indicates a company's assets, liabilities and equity accounts according to senior management's assumptions.

Pro Forma Income Statement

A pro forma income statement, otherwise referred to as a pro forma statement of profit and loss, indicates a firm's forecasted revenues and expenses over a period of time.

Pro Forma Cash Flow Statement

A pro forma statement of cash flows displays a company's pro forma cash inflows and outflows over a period of time.

References

• Investopedia: Pro Forma
• Investopedia: Understanding Pro-Forma Earnings