Suppose you have just signed a partnership agreement with your cousin Eddie to open a bookstore near your college. You believe that the store will be able to provide excellent service and undersell the local competition. To fund operations, you and Eddie have applied for a loan from the Small Business Administration. The loan application requires you to submit two financial budgets—a pro forma income statement and a pro forma balance sheet— within six weeks. Because of your expertise in accounting and business, Eddie has asked you to prepare the financial budgets.

1. How do the four w’s of preparing an accounting report apply in this situation— that is, why are you preparing these financial budgets, who needs them, what information do you need to prepare for them, and when are they due?

2. If you obtain the loan and open the bookstore, how can you and Eddie use the pro forma statements that you prepared?