Question

2) What are the major differences between a “Pro Forma” Income Statement and a Cash Budget (another name for this is Cumulative Cash Flow Statement). What would be the significance for each to a perspective lender?

Answer 1

Pro forma income statement	Cash Budgets
Pro forma income statement are projected income statement for an entity for some future date.	Cash Budgets are prepared before the financial year starts with an objective to determine and regulate the cash movement in the entity.
The preparation of such statements involves estimates/projections considering present and future conditions	The preparation of such budgets involves past years actual and budgeted figures as base.
Preparation of such kind of statement involves projecting the future revenue, estimating the cost, predicting the bad debts, provisions and other ancillary items appearing in the income statement.	Cash Budgets involves projecting only Cash movements and hence ignores Revenue but considers Cash Collection
There's no fixed time when Pro forma income statements are prepared	Cash Budgets are prepared annually before the financial year starts
the Actual Results are never compared with the Per forma statement because it’s just a projection.	The Actual Cash flows are compared with the Cash movements to determine the discrepancies and identify the variances there on.

The Prospective lenders look at the Pro forma Income statement to check the profitability of the entity whereas the Cash Budgets are looked with the motive of determining of the Cash generated and its uses in the company.

Pro forma Income Statement are imsportant to understand the business operations of the entity but Cash budgets guide how are the cash flowing in the entity.