Most of the times it has been seen that students of finance do have to struggle a lot when they have to describe pro forma of balance sheet homework answers. Our present system of education has become so complex that without guidance explaining the answers in simple words is seen as a feat of exemplary students only. Being a professor myself, I have come across projects where most students like you have a vague idea on which information to include as homework answers.
So Iâ€™m sharing few important aspects related to the topic of pro forma of balance sheet here.
Detailed way to explain pro forma of balance sheet homework answers
Defining pro forma of balance sheet
Pro forma of balance sheet is basically a financial statement which helps a company to make preparations in advance for those transactions that will be taking place in their organization. In a firm, it is the finance department which ensures of seeing through all the necessary factors and then implementing them to create this financial statement.
Factor and effect
One of the factors, in this case,is the complete review of the monetary conditions that the company is at present and what it can be in future. An extensive study will help you understand that preparation of this statement mainly influences every materialistic transaction that occurs in a firm. As the review is purely based on management and board reviews, this effect on business plan is clearly visible. Reflection of this is highlighted on the pro forma balance sheet.
Major objectives in relation to this topic
It is extremely important that you are well aware of the objectives before writing pro forma of balance sheet homework answers. Instead of writing oodles of abstract ideas of this section, you should write to the point. You should concentrate on the main objective of utilizing pro forma of balance sheet whose status is firm based. It sums up the details and is helpful to do planning for transactions that will take place in future.
Not just only the above information, but another of the object of pro forma is to prepare balance sheet by taking the assistance of current financial statement.
Items those are mandatory to be present in pro forma of balance sheet
Application of this balance sheet is essential to various businesses. So you need to understand that there are few items that are mandatory to have a presence on this balance sheet. There are nearly 33 items that are of prime importance. However, I have highlighted few of them.
- Intangible assets
- Cash equivalents
- Treasury shares
- Accounts payable
- Deferred tax liabilities
- Par value of shares
- Current assets
- Equipment for plant and company properties
- Prepaid expenses for services that companies may require at future
- Equity and Non-controlling interest in it
There are certain professional educative websites from where you can get detailed information about the other necessary items important for pro forma of balance sheet preparation.
Key points that you need to consider
When writing pro forma of balance sheet homework answers, it is imperative that you are aware of the key points for pro forma. Here are 3 of the essential ones.
- It is one of the necessary factors that pro forma financial statement should be prepared by a simple method. You need to keep in mind that the figures should be easily understandable. This ensures that the report bears clarity when it comes to figures. The outcome of it is a financial statement which is free from deviations and errors.
- The next point that you need to keep in mind are the various financial activities that take placed in a firm. These activities are recorded in other individual statements similar to that of pro forma accounting. There are 2 things that firms usually remove before making the final count. Those 2 are:
- Unusual transactions
- Non-recurring transactions
It is only after complete computation after such eliminations that firms make such statements. With this, their idea is to make estimation regarding monetary growth.
- Various companies prepare pro forma financial statements as per their requirement. If you go through academic websites or take assistance of good quality help manuals for pro forma of balance sheet homework answers, you can find variations. This is mainly regarding the duration when such statements are prepared. If you consider particularly about the field of business, preparation of these financial statements are made in advance.
There are certain grounds on which statements of transactions are basically planned. Some of them include:
- Earning new debts
- New capital investment
- Issuance of equity
- Change regarding capital structure
Uses of pro forma of balance sheet
We have already gone through the basic utilization of pro forma of balance sheet in the above sections. However, you should realize that comprehension of pro forma of balance sheet is only possible when its presentation is clear. Its utilization is only considered effective due to it being divided into columnar format, and that too in a standardized method.
Now, coming back to its various uses, here are few important ones.
- Related to the projections of profit and loss, gathering the total outcome
- Recognizing the various assumptions that are in relation to operating and financial characteristics. These are helpful in generating the various scenarios essential in business.
- Making comparison of the outcomes that balance sheet reflects
- Developing budget and sales projections in relation to expenditure and revenue generation
- Decision making in various areas like:
- Research and development
Apart from this, also reviewing all those decisions to analyze its influence on liquidity and profitability
- Converting the given data of various transactions and using those details as projections for cash flow
- Comparison of various projections and on them carrying out ratio analysis
I hope that these details will help you to know more about pro forma of balance sheet homework answers and get an idea how to arrange the required information properly.