Component percentages indicate the relative size of each item included in a total. Which of the following statements is true?
A) Income statement items are expressed as a percentage of net income, while balance sheet items are expressed as a percentage of total assets.
B) Income statement items are expressed as a percentage of net sales, while balance sheet items are expressed as a percentage of total assets.
C) Income statement items are expressed as a percentage of net income, while balance sheet items are expressed as a percentage of net worth.
D) Both income statement and balance sheet items are expressed as a percentage of net worth.

Question

Quizplus · Accepted Answer

Component percentages for income statement items are typically expressed as a percentage of net sales, as it is the primary source of revenue, while balance sheet items are typically expressed as a percentage of total assets, as they represent the resources available to the company. Option A and C are incorrect as they incorrectly state that income statement items are expressed as a percentage of net income, which is incorrect. Option D is incorrect as it suggests that all items are expressed as a percentage of net worth, which is not the case.

Component Percentages Indicate the Relative Size of Each Item Included