Question

A trend analysis to determine a year-to-year dollar amount change is calculated by subtracting the ________.

1) previous year's dollar amount from the current year's dollar amount
2) current year's dollar amount from the previous year's dollar amount
3) average of the current year's dollar amount and the previous year's dollar amount
4) sum of the current year's dollar amount and the previous year's dollar amount

Answer 1

The year-to-year dollar amount change in a trend analysis is found by subtracting the previous year's dollar amount from the current year's dollar amount. Calculating a growth rate can involve using the average of the initial and next quantities over a period.

Step-by-step explanation:

To analyze year-to-year financial changes, specifically in the context of trend analysis, one must calculate the dollar amount change. This calculation is performed by subtracting the previous year's dollar amount from the current year's dollar amount. For instance, if you are looking at the changes in Gross Domestic Product (GDP) over a period, and the GDP was $1 trillion in one year and increased to $1.03 trillion the following year, the change would be calculated as $1.03 trillion - $1.00 trillion, which equals a $0.03 trillion increase. When computing the growth rate over a period, it's common to use the average of the initial and next quantity as the denominator for more repetitive calculations, providing a more accurate reflection of the period's growth.