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 profit and balance sheet items as a percentage of total assets.
B) Income statement items are expressed as a percentage of sales and balance sheet items as a percentage of total assets.
C) Income statement items are expressed as a percentage of profit and balance sheet items 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

Income statement items are expressed as a percentage of sales/revenue, while balance sheet items are expressed as a percentage of the total assets. This is because the income statement shows the profitability of the business, which is determined by the sales/revenue generated, while the balance sheet reflects the financial position of the business, which is determined by the total assets it owns.

Component Percentages Indicate the Relative Size of Each Item Included