The analysis of financial statements is affected by inflation because ____.
A) the value of long-term debt will increase
B) the value of fixed assets may be understated
C) the life of long-term assets is decreased
D) inventory increases

Question

Quizplus · Accepted Answer

Inflation can cause the value of fixed assets to be understated on the balance sheet, as the historical cost of the assets may not reflect their current value. This can also impact the calculation of depreciation expenses and net income. The other options do not necessarily follow from inflation.

The Analysis of Financial Statements Is Affected by Inflation Because