proforma income statement

The Cash Budget
Cash budgeting is vital to survival. The firm must have enough cash on hand to pay
its bills and employees on time.   Too little cash leads usually to insolvency. On the
other side cash on hand earns low return on assets.  Excess cash should be put in
some form of investment (think trading securities, available‐for‐sale ‐‐ ask Apple).
Organizations consequently strive to manage their cash balances.
The cash  budget  forecasts cash needs  and the amount of cash the firm expects
to have availableto make anticipated payments for invoices and payroll. Most
firms establish guidelines for determining the safe minimum and maximum
amount of cash to have on hand.Cash budgets indicate when the cash account
will fall short of the minimum needs and additional financing is needed.  Cash
budgets also show when the firm might have excess cash to invest (Section 12 of the
The Budgeted Income Statement
The budgets predicting revenues and expenses can be used to prepare a proforma
(budgeted) income statement. This proforma income statement which is used to set
expectations and measure performance, also to keep investors informed of the
company plans
Exercise #13: Prepare an operating income statement for revenues, COGS, Gross
Profit, SG&A for the firm (ignore interest income/expense, gains/losses, and
taxes; see section 13 of the spreadsheet).