Question

TRUE or FALSE

1) On a pro forma income statement, the value we enter for sales revenue is normally derived

from our forecast.      

2) One does not need to determine if the operating expenses are in line with industry averages.

3) Start-up expenses are those expenses that will be incurred by the business one time.   

Answer 1

1) True- The statement "on a pro forma income statement, the value we enter for sales revenue is normally derived from our forecast" is true as proforma income statemet is also known as projected income statement and is primarily based on the Management's forecast of the business activities in the year to come.

2) False- This is false as we always need to determine and check whether or not the operating expenses are in line with the industry averages as this helps in determining the profitability of an organisation in comparison to industry. This also helps in better decision making and also to check whether the Investor's fund is not used in a manner prejudicial to their interest.

3) True- This is true as it represents initial one time/non recurring expenses that the enterprise incurs at the start of the business. For example: registration fees is a start up cost as it is incurred once during the lifetime of business.