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

Common-sized Statements

Financial Accounting

14. Financial Statement Analysis

Common-sized Statements

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Multiple Choice

Which one of the following best explains why financial managers use a common-size balance sheet?

To identify errors in the trial balance before preparing financial statements.

To calculate the net income for a specific accounting period.

To compare the relative proportions of assets, liabilities, and equity across companies of different sizes.

To determine the historical cost of fixed assets.

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Verified step by step guidance

Understand the concept of a common-size balance sheet: A common-size balance sheet expresses each item as a percentage of total assets, allowing for easier comparison across companies of different sizes.

Recognize the purpose: Financial managers use a common-size balance sheet to analyze the relative proportions of assets, liabilities, and equity, rather than focusing on absolute dollar amounts.

Identify the benefit: By converting values into percentages, it becomes possible to compare financial structures and performance across companies, regardless of their size.

Eliminate incorrect options: The common-size balance sheet is not used to identify trial balance errors, calculate net income, or determine historical costs of fixed assets.

Conclude the correct explanation: The correct reason for using a common-size balance sheet is to compare the relative proportions of assets, liabilities, and equity across companies of different sizes.