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

Vertical Analysis

Financial Accounting

14. Financial Statement Analysis

Vertical Analysis

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Multiple Choice

In a vertical analysis of a balance sheet, which item is typically used as the base amount for expressing all other items as a percentage?

Total Assets

Total Revenues

Total Liabilities

Net Income

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Verified step by step guidance

Understand the concept of vertical analysis: Vertical analysis is a method of financial statement analysis where each item on a financial statement is expressed as a percentage of a base amount. This helps in comparing the relative size of each item.

Identify the financial statement in question: The problem refers to a balance sheet, which is a snapshot of a company's financial position at a specific point in time.

Determine the base amount for a balance sheet: In vertical analysis of a balance sheet, the base amount is typically 'Total Assets'. This is because the balance sheet is structured around the accounting equation: Assets = Liabilities + Equity.

Explain why 'Total Assets' is used: Total Assets represent the total resources owned by the company, and all other items (liabilities and equity) are expressed as a percentage of this base amount to show their proportionate size relative to the company's total resources.

Clarify the incorrect options: 'Total Revenues' and 'Net Income' are relevant for the income statement, not the balance sheet. 'Total Liabilities' is part of the balance sheet but is not used as the base amount in vertical analysis.