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List the reasons for preparing pro forma financial statements from GAAP financial statements. What are typical...

List the reasons for preparing pro forma financial statements from GAAP financial statements. What are typical adjustments made to GAAP statements when preparing pro forma statements used in forecasting?

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Answer #1

Pro Forma statements are simplified presentation of forecast of the future income and expense statement. It is designed for easy understanding by investors and it is very easy to prepare.

Typical adjustments from GAAP
1. One time expenses like merger costs are excluded from proforma statement.
2. Depreciation , good will, amortization ,etc which are present in GAAP financial statements are excluded.
3. Proforma statements are hypothetical or forecasted statements whereas GAAP financial statements are actual past financial data.

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