The Key Inputs for Preparing Pro Forma Income Statements Using

question 101

Multiple Choice

The key inputs for preparing pro forma income statements using the percent-of-sales method are the ________.

• A)sales forecast for the preceding year and financial statements for the coming year
• B)sales forecast for the coming year and the cash budget for the preceding year
• C)sales forecast for the coming year and financial statements for the preceding year
• D)cash budget for the coming year and sales forecast for the preceding year

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Definitions:

Potential Output

Potential output refers to the maximum amount of goods and services an economy can produce when it uses its resources fully and efficiently, without prompting inflation.

Cash Conversion Cycle

A metric that expresses the duration (in days) it takes for a company to convert its investments in inventory and other resources into cash flows from sales.

DSO

Days Sales Outstanding, a measure of the average number of days that a company takes to collect revenue after a sale has been made.

Average Inventory

It is the mean value of inventory within a specific period, calculated to help understand inventory levels and manage them effectively.