In commercial transactions, a pro forma invoice is a document that indicates an obligation for the seller to sell goods to the buyer at certain prices and conditions. It is used to declare the value of the transaction. This is not an actual invoice as it is not used to enter receivables for the seller and accounts payable for the buyer. In business, pro forma financial statements are prepared prior to a proposed transaction, by . B a merger, acquisition, new capital investment or change in capital structure, such as the emergence of new debt or the issuance of shares. Pro forma models model the expected results of the transaction, with a focus on projected cash flow, net income and taxes. Therefore, pro forma statements summarize a company`s projected future position based on current financial statements. [1] Pro forma figures must be clearly indicated as such and the reason for any deviation from the reported figures of the past must be clearly explained. For the components/steps of business modeling, see here the list for „Equity Valuation” under the cash flow valuation structure #Discounted financial; see also Valuation using discounted cash flows #Determine cash flows for each forecast period for further discussion. Pro forma statements do not have to meet the highest accounting standards, but they must be clearly labeled as „pro forma” and cannot be used for things like tax returns.

Using pro forma statements that are not marked as such to misrepresent your business to investors, the IRS, or financial institutions can be penalized by the Securities and Exchange Commission). You may be courting investors or trying to convince your business partners of the value of a capital investment or additional financing. In this case, you can use a pro forma projection of funding to support your case. It takes into account an injection of cash from an external source – plus any interest payments you might need to make – and shows how this affects your company`s financial situation. I`m sure that`s how it was done, but a little knowledge of Latin is a dangerous thing, and so it doesn`t feel like you`re saying formally for formal dance, it`s more like a prepositional sentence. But since this isn`t the only way (and not even a favo(u)red way if the above opinions are to be considered representative) of saying/meaning form in BrE, I don`t feel particularly motivated to use pro forma instead of the perfectly usable form. Prepare your pro forma income statement with the data you have compiled in the previous four steps. For example, if a transaction that has a material impact on a company`s financial condition is contemplated, the finance department will prepare a business plan with pro forma financial statements for review by management and the board of directors that describe the expected impact of the proposed transaction on the financial viability of the business. Lenders and investors will need these statements to structure or confirm compliance with borrowing obligations such as debt service reserve coverage and debt ratio.

When a new company is considered, its founders will prepare pro forma financial statements to inform potential investors. In addition, banks will require pro forma returns instead of tax returns for a start-up to verify cash flow before issuing a loan or line of credit. Specific documents are required before goods can pass through U.S. Customs. A traditional commercial invoice should include essential information such as the buyer and seller, a description of the goods, the quantity, the value of all items shipped, and the place of purchase. Different but related: You can send customers pro forma invoices to let them know what their order would be if they placed it today. Use a pro forma invoice to create a potential sale and an invoice to confirm that an invoice has been issued. Sometimes it is necessary to create a preliminary purchase contract before your product or service has been delivered, with an accurate quote, shipping costs and taxes. Pro forma invoices are often used when shipping items internationally, as they contain all the details needed for shipping to handle customs before delivery. Beginning in the late 1990s, there was a boom in pro forma reporting in the United States, with many dot-com companies using the technique to convert their losses into profits, or at least posting lower losses than reported by US GAAP accounting. .

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