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Summary

In this chapter, you have learned how to use historical information to project future revenues and expenses by means of the Percentage of Sales method. This process enables you to create pro forma income statements and balance sheets. Pro formas, in turn, enable you to examine the likely effects on your operations and profits if conditions change or if you modify some aspect of your revenues and expenses.

Operating budgets, which help you plan and manage the way you conduct your business, flow naturally from pro forma statements. You can use budgets to break down your operations and finances into meaningful time periods such as months and quarters. This gives you additional insight into how changes, whether planned or thrust on you, might affect your financial picture.


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