Transcript Should You Become an Entrepreneur?
Lesson 9.2
Pro Forma Financial Statements Goals
Prepare a pro forma cash flow statement.
Prepare a pro forma income statement.
Prepare pro forma balance sheet.
Chapter 9 Slide 1
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Cash Flow Statement
cash flow statement
an accounting report that describes the way ________ flows into and out of your business over a period of time The amount of cash coming in is your revenue.(________________) The amount of cash going out is your expense (______________________________) Chapter 9 Slide 2
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Forecast Receipts and Disbursements
To create a pro forma cash flow statement, you will need to _________: monthly cash receipts (revenues) monthly cash disbursements (expenses) Chapter 9 Slide 3
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Cash Flow Statement
Cash receipts (revenue) include: Cash sales, collected accounts receivable, ____________, and funds from bank loans and investors You will need to analyze the ___________ for each of your products and services You will also need to know the price you will charge for each item Chapter 1 Slide 4
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Chapter 9 Slide 5
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Cash Flow Statement
Cash disbursements may include: Payments for cost of goods (what you pay manufacturers or wholesalers to get products and services to sell) accounts payable ____________ Salaries Taxes office supplies ____________ Insurance Advertising Loans other expenses Chapter 1 Slide 6
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Chapter 9 Slide 7
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Prepare the Cash Flow Statement
After making projections of revenues and expenses, you are ready to prepare the cash flow statement.
You should create monthly pro forma cash flow statements for the _____________________ and annual statements for the second and third years to give your lender and accurate picture of your cash flow over time.
Chapter 9 Slide 8
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Cash Flow Statement
net cash flow = cash receipts ─ cash disbursements Pro forma statements help you anticipate when _____________ cash flows will occur.
You can plan how to handle or avoid them You may need to borrow money Chapter 1 Slide 9
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Chapter 9 Slide 10
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Cash Flow Statement
Note: Operating expenses exceed revenues during the first few months of operation. The cash flow for Walters Electric will be negative because her sales will be low and some expenses will be high.
Chapter 1 Slide 11
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Cash Flow Statement
Many entrepreneurs create two types of cash flow statements ____________________ —project lower revenues and higher expenses than you think you will have Will help you identify how much cash you will need if your business does worse than expected _________________-project the highest revenues and the lowest expenses your business is likely to have Will show you how much cash you will have if your business does better than expected Chapter 1 Slide 12
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Economic Effects on Cash Flow
Changes in the economy can dramatically effect the cash flow of businesses.
Business owners should make ______________________.
Chapter 9 Slide 13
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What does a cash flow statement show?
Chapter 1 Slide 14
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Income Statement
income statement
shows revenues and expenses incurred over a period of time shows the _________ or __________ for the time period Chapter 9 Slide 15
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Income Statement
Can help you do the following: Examine how sales, expenses, and income are ___________ over time Forecast how well your business can expect to perform in the future Analyze your costs to determine where you may need to cut back Identify categories of expenditures you may want to increase or decrease, such as advertising Chapter 1 Slide 16
Entrepreneurship: Ideas in Action 5e
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Income Statement
The cash flow statement deals with _________ cash coming in and going out. It shows when you actually make a payment on an invoice or when you receive money due to you from a customer.
The income statement shows revenues you have not received and expenses you have not paid yet. It is a ____________________ at the financial stability of your business.
Chapter 1 Slide 17
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Income Statement
Suppose Walters Electric sells $5,000 worth of lighting in June. The company’s monthly income statement would show income of $5,000 but Felicia may not actually have received $5,000 because: Customers may have asked to be billed. Felicia will not receive their payments until July or August.
Some customers may never pay their bills Because not all business transactions are paid for immediately, the income statement and the cash flow statement usually will be __________ Chapter 1 Slide 18
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Prepare a Pro Forma Income Statement
The ___________________ of your business can be demonstrated by a pro forma income statement prepared for multiple years.
Most businesses choose a year as the period measured by an income statement New businesses often view their income statement _______ in order to determine whether a profit is being made Chapter 9 Slide 19
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The pro forma income statement consists of: _______________ Cost of goods sold Gross profit Operating expenses Net income before taxes _____________ Net income/loss after taxes Chapter 9 Slide 20
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Income Statement
Revenue —dollar value of goods or services a business sells Cost of goods sold —cost of ___________ a business sells (only businesses that have inventory will have this item on their income statements) Gross profit —the difference between revenue and cost of goods sold Chapter 1 Slide 21
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Income Statement
Operating expenses —the expenses necessary to operate a business. Including: salaries, rent, utilities, advertising, insurance, supplies, and other expenses _________________________ —amount remaining after cost of goods sold and operating expenses are subtracted from revenue (the amount you earned before taxes) Chapter 1 Slide 22
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Income Statement
Taxes —usually listed separately from other expenses Net income/loss after taxes —after taxes are __________, the result is the net income or loss for the period Chapter 1 Slide 23
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Chapter 9 Slide 24
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What does an income statement show?
Chapter 1 Slide 25
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Balance Sheet
balance sheet
a financial statement that lists what a business ____________ what a business ____________ how much a business is worth at a point in time assets = liabilities + owner’s equity Chapter 9 Slide 26
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Balance Sheet
Assets are items of value owned by a business Cash ___________________ Inventory Liabilities are amounts that a business owes to others __________________ Outstanding invoices Chapter 1 Slide 27
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Balance Sheet
_________________ is the amount remaining after the value of all liabilities is subtracted from the value of all assets A business that has more assets than liabilities has positive net worth A business that has more liabilities than assets has ___________________ Chapter 1 Slide 28
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Prepare a Pro Forma Balance Sheet
You must __________ the amount of assets, liabilities, uncollectible accounts, and asset depreciation Chapter 1 Slide 29
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Prepare a Pro Forma Balance
Sheet
Types of Assets current assets (__________________) can be converted to cash easily Examples: cash, inventory, and items that are used up in normal business operations accounts receivable (another type of current asset) the amounts owed to a business by its ________________ fixed assets cannot be converted into cash easily Examples: buildings, furniture, and computers Chapter 9 Slide 30
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Types of Liabilities long-term liabilities debts that are payable over a _________ or longer Example: Mortgage current liabilities debts that must be paid in full in ______________ accounts payable (special kind of current liability) amounts owed to vendors for merchandise purchased on credit Chapter 9 Slide 31
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Reductions in Assets allowance for uncollectible accounts the amount a company estimates it will _______ ______________ from customers depreciation the _____________ of an asset’s value to reflect its current worth Equipment in your business will depreciate over time just as a car loses value year after year Estimates for uncollectible accounts and depreciation should be included to provide an accurate picture of a business’s net worth Chapter 9 Slide 32
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Chapter 9 Slide 33
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Open your Chapter 9 Assessment questions. Complete the table below and add to your Chapter 9 Assessment.
Description
Current (liquid) asset-
Example
Fixed (illiquid) asset Current liability Long-term liability Chapter 1 Slide 34
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9.2 Assessment Questions
Directions: Open your Chapter 9 Assessment questions. Complete the 9.2 Think About It questions on page 262. Type the questions and bold your answers. Save and upload.
Chapter 1 Slide 35
Entrepreneurship: Ideas in Action 5e
© 2011 Cengage Learning. All rights reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.