using a systems approach to financial planning it is necessary to develop a
a.pro forma income statement
b.cash budget
c.pro forma balance sheet
d. all of the above
The correct answer is d. all of the above. When using a systems approach to financial planning, it is essential to develop a pro forma income statement, cash budget, and pro forma balance sheet. Let me explain each of these components:
1. Pro forma income statement: This is a projected financial statement that estimates the revenues, expenses, and net income for a specific period, often for the upcoming year. It helps in forecasting the profitability of a company or organization. To develop a pro forma income statement, you would need to gather and analyze historical financial data, industry trends, and assumptions about future revenues and costs.
2. Cash budget: A cash budget is a financial tool that estimates the cash inflows and outflows over a set period, typically on a month-to-month basis. It helps organizations understand their cash position and plan for any potential shortfalls or surpluses. To create a cash budget, you need to identify all the sources of cash (such as sales revenue, loans, or investments) and all the cash expenses (such as salaries, rent, and utilities).
3. Pro forma balance sheet: A pro forma balance sheet is a projected snapshot of an organization's financial position at a future date. It shows the assets, liabilities, and owner's equity that are expected based on planned activities and assumptions. It is useful for evaluating the financial health and changes in the financial position of a business. To prepare a pro forma balance sheet, you would need information from the pro forma income statement and cash budget, as well as other relevant financial data.
By developing all three components - pro forma income statement, cash budget, and pro forma balance sheet - you can gain a comprehensive understanding of the financial outlook and performance of an organization, helping you make informed decisions and plan for future needs.