Component of accounting concern the ability to construct, read, and use the financial statements of a business. Financial statements are commonly referred to as “accounting statements”.

Businesses create documents known as financial statements that provide information about the company’s assets, liabilities, equity holdings (funds invested and retained earnings), revenues, expenses, cash flow, disbursements to owners (dividends), etc.

In summary, financial statements are the reports used to communicate the accounting information to the end user.

Accounts identify, report, and communicate. The financial statements are a method of reporting and communicating information to the end user.

The financial report should be structured in such as way that the end users, whether they be stakeholders or investors or creditors, can understand it. They can compare it. It’s reliable and it’s relevant information.

There are four main financial statements include:

• Income statement,
• Statement of retained earnings,
• Balance sheet, and
• Statement of cash flow.

There may be some other ones that are thrown in there in specific circumstance. We will take a closer look at each of these financial statements in this section.

What is Pro Forma?

Pro forma is a Latin phrase that means as a matter of form. In business and investing, it refers to the manner in which a firm calculates and presents its financial results. The pro forma calculation method emphasizes current and projected figures.

Pro forma financial statements are designed to emphasize specific figures in a company’s financial reports.

The most notable examples of such reports are earnings statements published quarterly by public companies for shareholders and potential investors. Companies also use pro forma statements to highlight different financial transactions, like mergers and acquisitions.

Pro forma statements do not have to comply with Generally Accepted Accounting Principles (GAAP).

In fact, a company’s pro forma figures often differ drastically from its standard GAAP documents.

Since pro forma statements aren’t restricted by GAAP, companies can create statements to emphasize the most important aspects of their business performance.

Company financial statements are examples of pro forma in the accounting field.

These reports are usually included in earnings statements, but they don’t include unusual or nonrecurring transactions.

By eliminating miscellaneous costs from financial statements, potential investors can get a clearer picture of core business performance.