When should an average amount be used for the numerator or denominator?
A)When the ratio consists of only statement of financial position items
B)When the ratio consists of only income statement items
C)When a ratio consists of an income statement item and a statement of financial position item
D)Never; the numerator or denominator should always be a year-end balance

Question

Quizplus · Accepted Answer

When a ratio consists of an income statement item and a statement of financial position item, an average amount is used to better reflect the period over which the income was generated, as financial position items are typically point-in-time measures.

When Should an Average Amount Be Used for the Numerator