What is the purpose of a pro forma income statement?

• A. It records actual cash receipts.
• B. A pro forma income statement forecasts profitability based on assumptions about revenues and costs.
• C. It documents asset purchases.
• D. It lists liabilities by maturity.

Answer: (B)

The main idea is forecasting profitability for a future period by using assumed levels of revenue and costs. A pro forma income statement lets you model how different scenarios will affect net income, helping with budgeting, planning, and evaluating proposals or financing needs. It’s based on estimated sales, prices, and expense assumptions, rather than recording actual results. That’s why it’s about projecting profitability, not capturing actual cash receipts, documenting asset purchases, or listing liabilities by maturity. For example, you might project revenue if patient volume grows or prices change, then subtract estimated costs to see expected net income under that scenario.