Question

Which of the following statements regarding horizontal analysis is not true? Multiple Choice a.Percentage analysis involves computing the percentage relationship between two amounts. b.In horizontal percentage analysis, a financial statement line item is expressed as a percentage of the previous balance of the same item. c.A horizontal analysis of cost of goods sold on the income statement includes dividing net income by total revenue. d.Horizontal analysis attempts to eliminate the materiality problem of comparing firms of different sizes.

Answer 1

Answer:

The answer is B In horizontal percentage analysis, a financial statement line item is expressed as a percentage of the previous balance of the same item.

Explanation:

Horizontal analysis of a balance sheet shows changes in individual assets, liability, and equity items over time.

Horizontal analysis of an income statement compares the amount of each item on a current income statement with the same item on an earlier income statement.

Horizontal analysis is used in financial statement analysis to compare historical data, such as ratios, or line items, over a number of accounting periods. Horizontal analysis can either use absolute comparisons or percentage comparisons, where the numbers in each succeeding period are expressed as a percentage of the amount in the baseline year, within the baseline amount being listed as 100%.