Select the incorrect statement regarding horizontal analysis.
A)Percentage analysis involves establishing the relationship of one amount to another.
B)In doing horizontal analysis, an account is expressed as a percentage of the previous balance of the same account.
C)Percentage analysis attempts to eliminate the materiality problem of comparing firms of different sizes.
D)A horizontal analysis of cost of goods sold on the income statement includes dividing net income by total revenue.

Question

Quizplus · Accepted Answer

Vertical analysis uses percentages to compare individual components of financial statements to a key statement figure. Dividing cost of net income by sales is vertical analysis. Horizontal analysis is the study of the behavior of individual financial statement items over several accounting periods. The analysis of a given item may focus on trends in the absolute dollar amount of the item or trends in percentages. Horizontal analysis compares items over many time periods;

Select the Incorrect Statement Regarding Horizontal Analysis