Table of contents

1. Introduction to Accounting1h 21m
2. Transaction Analysis1h 13m
3. Accrual Accounting Concepts2h 38m
4. Merchandising Operations2h 30m
5. Inventory1h 55m
6. Internal Controls and Reporting Cash1h 16m
7. Receivables and Investments3h 8m
8. Long Lived Assets5h 1m
9. Current Liabilities2h 19m
10. Time Value of Money1h 23m
- Time Value of Money Equations
  35m
- Using Time Value of Money Tables
  47m
11. Long Term Liabilities2h 45m
12. Stockholders' Equity2h 15m
13. Statement of Cash Flows2h 24m
14. Financial Statement Analysis5h 25m
15. GAAP vs IFRS56m

14. Financial Statement Analysis

Introduction to Ratios

Financial Accounting

14. Financial Statement Analysis

Introduction to Ratios

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Multiple Choice

A tool used to evaluate individual financial statement items or a group of items is called:

A ratio

A journal entry

A trial balance

A ledger

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Verified step by step guidance

Understand the purpose of the question: It is asking about a tool used to evaluate financial statement items or groups of items. This requires knowledge of financial analysis tools.

Review the definitions of the options provided: A ratio is a financial analysis tool that compares two or more financial statement items to evaluate performance or relationships. A journal entry records transactions in the accounting system. A trial balance lists all accounts and their balances to check for errors. A ledger is a collection of accounts showing detailed transactions.

Focus on the term 'evaluate': The question emphasizes evaluation, which is typically done using ratios in financial accounting. Ratios help analyze liquidity, profitability, efficiency, and solvency.

Consider examples of ratios: Common ratios include the current ratio (Current Assets ÷ Current Liabilities), debt-to-equity ratio (Total Liabilities ÷ Total Equity), and return on equity (Net Income ÷ Shareholder's Equity). These are used to assess financial health.

Conclude that the correct answer is 'A ratio' because it is the tool specifically designed for evaluating financial statement items or groups of items, unlike the other options which serve different purposes in accounting.