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

In a common-size income statement, each item is expressed as a percentage of total:

liabilities

assets

equity

sales (revenue)

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Verified step by step guidance

Understand the concept of a common-size income statement: It is a financial statement where each line item is expressed as a percentage of a base figure, typically to facilitate comparison across companies or periods.

Identify the base figure for a common-size income statement: In this case, the base figure is total sales (revenue), as the income statement primarily focuses on the company's performance and profitability.

Recognize why sales (revenue) is used as the base: Sales represent the total income generated by the company from its operations, and all other items (e.g., cost of goods sold, operating expenses, net income) are expressed as a percentage of this figure to show their relative size and impact.

Clarify the incorrect options: Total liabilities, assets, and equity are balance sheet items and are not used as the base for a common-size income statement. These items are relevant for a common-size balance sheet instead.

Apply the concept: To create a common-size income statement, divide each line item (e.g., cost of goods sold, operating expenses) by total sales (revenue) and multiply by 100 to express it as a percentage.