Proforma Financial Statements

In Ralph Estes's Dictionary of Accounting (MIT, Cambridge, 1981, p. 105),
a proforma financial statement is defined as "a financial statement
prepared on the basis of some assumed events and transactions that
have not yet occurred." Historical financial statements are used to
measure an organization's past financial performance and condition.
Without historical financial statements, financial analysis and evaluation
would not be possible and management, board members, investors, and
customers would be largely in the dark about how well an organization
has done.

Proforma financial statements are similar to historical financial statements
in appearance and use, except that they focus on the future instead of
the past and are based upon assumptions rather than hard fact.

Historical statements should be real, solid, and scientific, while proforma
statements allow management to exercise a certain amount of creativity
and flexibility. Proforma statements reflect a dynamic environment in
which change is still possible and a variety of different alternatives can be
followed. They take the same forms as historical statements, the most
common being the income statement, the balance sheet, and the
statement of changes in financial position.
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