Question

What are the basic benefits and purposes of developing pro forma statements and a cash budget?

Short answer

The proforma statements and the cash budgets enable the company to determine the future requirement of funds or assets for the future financial projects of the organization. Creditors and bankers can also use these statements to make credit decisions.

Step-by-step solution

Purpose of developing the pro forma statements and the cash budgets

The purpose of proforma financial statements and the cash budgets of the company is to provide a comparison of the historical data and projection of the future projects.

Benefits of developing the pro forma statements and the cash budget

The development of the proforma financial statements and the cash budgets can help the company in predicting future incomes. By using these statements an organization can develop a plan to deal with the future risk involved in the projects. It is an estimation of the future expenses to be incurred by an organization to complete the project successfully. In addition, bankers and creditors can use these financial statements to make credit decisions for the company.