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Projected Income Statement

Provided by SME.com.ph

The projected income statement shows the expected financial results of the business’s operations for a period of time. Depending on the requirements of lenders and investors, the projections can range from three (3) years to five (5) years. Among the items in the projected income statement which must be reasonably estimated are the following:

  1. Revenues - give initial year figure and an absolute/percentage annual increase.
  2. Product costs (for manufacturing/assembly) – specify increases in cost over projection period
  3. Selling expenses/general and administrative expenses
    1. rent
    2. insurance
    3. salaries, wages and benefits - provide personnel schedule as well as details on salaries, wages and benefits due
    4. office supplies
    5. utilities (telephone, water, electricity)
    6. gasoline and other transport-related expenses
    7. repairs and maintenance
    8. advertising and promotion
    9. representation expenses
    10. taxes and licenses
    11. non-cash expenses such as depreciation* and amortization of pre-operating expenses** - it is important to include these as these are allowable deductions from gross income for purposes of computing for taxable income.
  4. Income tax
  5. Financial expenses – these include interest charges on loans to be availed of, as well as short-term financial charges in case of period to period cash shortfalls.

* Depreciation is a non-cash expense because it is simply an estimation of the use of a business’s fixed assets. To compute for depreciation expense, list all fixed assets with their respective costs and useful life. For instance, office equipment and vehicles are depreciated over 5 years, plant equipment over 10 years, and buildings, 20 years. Divide cost over useful life to get depreciation expense per year.

** Pre-operating expenses, although incurred in full at the start of the business, may be “charged” against income over a number of years. To compute, simply divide pre-operating expenses over amortization period, say 5 years, yielding amortization expense per year.

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