Which term describes a financial statement based on projected revenues and expenses?

Which term describes a financial statement based on projected revenues and expenses?

• A. income statement
• B. pro forma financial statement
• C. balance sheet
• D. cash flow statement

Answer: (B)

Forward-looking planning uses a pro forma financial statement, which projects future revenues and expenses to show what the business might look like under certain assumptions. This kind of statement is not based on actual past results but on estimated future performance, making it ideal for budgeting, evaluating scenarios, and presenting plans to investors or lenders. In contrast, an income statement shows actual results from a past period, a balance sheet reveals the financial position at a specific moment in time, and a cash flow statement tracks actual cash movements over a period. Pro forma statements accompany these others when you want to forecast how decisions or events will impact profitability and financial needs.

Forward-looking planning uses a pro forma financial statement, which projects future revenues and expenses to show what the business might look like under certain assumptions. This kind of statement is not based on actual past results but on estimated future performance, making it ideal for budgeting, evaluating scenarios, and presenting plans to investors or lenders.

In contrast, an income statement shows actual results from a past period, a balance sheet reveals the financial position at a specific moment in time, and a cash flow statement tracks actual cash movements over a period. Pro forma statements accompany these others when you want to forecast how decisions or events will impact profitability and financial needs.