Final answer:
An income statement showing revenue and expenses across two years with dollar and percentage changes is called horizontal analysis. This comparison method highlights trends and performance by displaying changes both as absolute numbers and as percentages.
Step-by-step explanation:
An income statement that shows revenue and expenses for two years and the changes in dollar and percentage amounts is referred to as a horizontal analysis. This method compares financial statements across different periods to track the performance and trends of a business. Through horizontal analysis, changes are displayed in both dollar amounts and percentages to facilitate comparison. The significance of this analysis becomes apparent when considering that the same change over time results in a diminishing growth rate; for example, a consistent $2 raise each year results in decreasing percentage growth as the base amount increases. This highlights that to maintain the same growth rate, the change must increase each period. Graphs are frequently utilized to present such numerical patterns, with time series graphs being particularly useful to show how variables change over time.