![]() However, pro forma statements are still extremely useful. ![]() Using pro forma statements that aren’t marked as such to misrepresent your business to investors, the IRS, or financial institutions can be penalized by the Securities and Exchange Commission). Pro forma statements don’t need to meet the strictest accounting standards, but must be clearly marked as “pro forma” and can’t be used for things like filing taxes. This is because GAAP compliant reports must be based on historical information. Since pro forma statements deal with potential outcomes, they’re not considered GAAP (generally accepted accounting principles) compliant. As in, “What if my business got a $50,000 loan next year?” Your pro forma statements for that scenario would show what your income, account balances, and cash flow would look like with a $50,000 loan. Pro forma statements look like regular statements, except they’re based on what ifs, not real financial results. ![]() There are three major pro forma statements: They’re a way for you to test out situations you think may happen in the future to help you make business decisions. When it comes to accounting, pro forma statements are financial reports for your business based on hypothetical scenarios. Pro forma is actually a Latin term meaning “for form” (or today we might say “for the sake of form, as a matter of form”). Made or carried out in a perfunctory manner or as a formalityīased on financial assumptions or projections According to Merriam-Webster, “pro forma” means:
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