Proforma

each element in your Question 1 pro forma profit and loss statement. Are there any items that

DQ 1:   What are the differences between the direct and indirect presentation of cash flows?  What are the advantages and disadvantages of the direct and indirect methods and which does the Financial Accounting Standards Board (FASB) favor and why?

‘Cash and cash equivalents’ include certain short-term investments and, in some cases, bank overdrafts. Like IFRS, ‘cash and cash equivalents’ include certain shortterm investments, although not necessarily the same short-term investments as under IFRS. Unlike IFRS, bank overdrafts are considered a form of short-term financing, with changes therein classified as financing activities. The statement of cash flows presents cash flows during the period, classified by operating, investing and financing activities. Like IFRS, the statement of cash flows presents cash flows during the period, classified by operating, investing and financing activities. The separate components of a single transaction are classified as operating, investing or financing. Unlike IFRS, cash receipts and payments with attributes of more than one class of cash flows are classified based on the predominant source of the cash flows unless the underlying transaction is accounted for as having different components. Cash flows from operating activities may be presented using either the direct method or the indirect method. If the direct method is used, then an entity presents a reconciliation of profit or loss to net cash flows from operating activities; however, in our experience practice varies regarding the measure of profit or loss used. Like IFRS, cash flows from operating activities may be presented using either the direct method or the indirect method. Like IFRS, if

These are forecasts of what a firm expects its income statement and balance sheet to look like a year or two ahead. Occassionally, firms use this statements for several reasons:

The statement of cash flows reports the cash receipts, cash payments, and net change in cash resulting from the operating, investing, and financing activities of a company during a period in a format that reconciles the beginning and ending cash balances

Pro forma financial statements are based on our income statements, balance sheets, and cash flow statements and the projections we make to see where each change during the projected time will take us in the future.

According to Siegel, R. & Yacht, C. (December 2009) Pro forma statements show: “Projected results for financial statements in the future, given assumptions about what will happen in the meantime.”

Have you ever tried to figure it out your future or why things turn out the way it did last year. In order to get answers would you visit a psychic consultant or would you sit down and evaluate the situation. Well, in the business world many times there is not much difference. Organizations are always looking for ways to prevent downturns. However, this doesn’t guarantee 100% success in the business. But, there’s a way companies try to envisage the future is through the use of pro forma statements. Therefore, having a pro forma statement is an important tool to have when planning future operations. It helps to create projections in the future and be more preparing in case they need to make operational changes, such as increasing prices or decreasing

Second, since we have to complete a pro-forma financial and income statement for our essays, it is great that two of the three questions address the two types of statements. I agree with you that careful consideration for both the pro-forma and income statement needs to be focused on, especially if corporations are projecting a new project.

Pro forma is Latin for “as a matter of form” or “for the sake of form”, this term is applied to procedures or documents that are completed as a pure formality, routinely, or seek to satisfy the least requirements. These statements are prepared in advance of a planned transaction, such as acquisition, a merger, a new capital investment, or a change in capital structure. Furthermore, pro forma models the anticipated outcomes of the transaction, with particular importance on the projected cash flows, net revenues and taxes. Consequently, these statements summarize the projected future status of a company, based on the current financial statements. Pro forma statements can help a business minimize the risks associated with running a business. Also

Profit and loss, incorporating sales, cost of sales, operating expenses, and profits. This of course is also a pro forma income statement. In most cases it should show sales less cost of sales as gross margin, and gross margin less operating expenses as profit before interest and taxes (also called gross profit, and contribution to overhead). Normally there is also a projection of interest, taxes, and net profits.

Current Generally Accepted Accounting Principles (GAAP) states, “[i]n reporting cash flows from operating activities, entities are encouraged to report major classes of gross cash receipts and gross cash payments and their arithmetic sum—the net cash flow from operating activities (the direct method)” (ASC-230-10-45-25). In addition, per ASC 230-10-45-30, if a company chooses to report the change in cash flow from operating activities using the direct method, it must also include a separate schedule containing the indirect method, which is a reconciliation of net income to cash flows from operating activities. In choosing to write the standards this way, the Financial Accounting Standards Board (FASB) considered both methods and recognized the advantages of each. However, the board noted that neither method provided enough benefit on its own to justify the required use of one or the other. The board believes that the more comprehensive approach would be to use the direct method in the operating section of the statement of

Cash receipts are reported for operating, financing and investing activities. Cash from operations includes cash that is obtained through daily business operations. Cash from investing is generated from investing in assets that produce a yield. This can include the sale of equipment, other businesses, or long-term assets. Cash from financing is cash that is received or paid due to borrowing practices. Dividends are also included in this section.

The cash flow statement is a financial report that shows the cash generated and used during a given time interval specified in a company’s history. More specifically, the cash flow statement displays cash flow from three types of activities, operational, investing, and financing activities. Operational cash flow activities include changes in cash that result from fluctuations in accounts payable, accounts receivable, inventory, and depreciation. Investing cash flow expresses a change in cash that result from additions, improvements, or sale of fixed assets. Financing cash flows shows change which results from increased borrowing, debt repayment, stock issuance, stock repurchase, or dividend payment. The cash flow statement starts with net income, the amount of money generated from the sales of product minus all of the variable costs including interest and taxes. Next the cash flow statement displays the details of the operational, investing, and financing activities. Finally, at the bottom of cash flow statement is listed the net change in cash flow for the period. Refer to table 1 below for the cash flow trend for team Baldwin in years 6 through 8.

A)Statement of cash flows: Shows how much cash comes in and out of the business,as it reports the cash generated and used during the time interval.specified in its heading. Cash from operating activities is compared to the company’s net income i.e. if it is consistently greater than the net income, then the company’s net income is said to be of high quality, whereas if it is lower than net income concerns