Question

Please briefly describe an income statement, statement of cash flows, and balance sheet. Please describe a hypothetical pro forma income statement.

Answer 1

1. Income statement

Financial statements which shows the profit and loss situation , expenditures and revenues , and shows the calculation of net income which is (Total income - Total expenses )  of the organisation are known as income statements.

To prepare the income statements we will need to calculate below

• Calculation of revenue
• Cost of goods sold
• Operating expenses
• income taxes
• Net income
• gross margin etc.

There are mainly two types of income statements.

• Single step income statements
• Multi-step income statements

2. Statements of cash flow

A cash flow statement is the financial statement that measures the cash generated or used by a company in a given period

Cash flow statements typically breaks company cash sources and uses for period into three categories

• Cash flows from operating activities
• Cash flow from investing activities
• Cash flow from financing activities

Cash flow statements are very important for organisations to expand, reduce their debt, develop new products, Invest into financial instruments and pay dividends. As they give fair idea about the cash which the company has or which they will receive. Hence Cash flow statements are very useful to determine the cash situation of the company.

3. Balance sheet

Balance sheet is financial statement which help determine the financial position of the company that list the assets, liabilities and shareholders equity and provide us the net worth of the company

Below are the components included in the balance sheet.

- Assets side

• Cash
• Prepaid expenses
• accounts receivable
• inventory
• fixed assets

- Liabilities side

• Accounts payable
• accrued liabilities
• customer prepayments
• taxes
• short term debt
• long term debt

Below is image for pro-forma of income statement

Hypothetical pro forma for income statement. * Puo forma income statement. is simply a future version of Income statement which can help us de cribe future goals and scenarios of company. We will take 3 years proforma for year 2018, 2019 and 2020 and will take 20% increase each year in the company sales Chypothet Cally (20% Increase) Income statement 2018 2019 2020 Revenue 10,000 12,000 14,000 COGS 5 ,000 6,000 7, 200 Ipepreciation 2,000 2,000 2,000 . EBIT 3,000 4,000 5200 Interest paid 6oo Goo L 600 IBT 2 ,400 3,400 4,600 tanes (15%) 360 | 510 L Net income (2,040 2,890 3910 690 * Depriclation and intenest pald wla be same for all three years ta Cogs - Cost of Goods sold . Shore - All figures are hypotheticall