Final answer:
On a common-size balance sheet, every account is shown as a proportion of total assets. This allows for a standardized representation of the financial statements for easy comparison across different companies.
Step-by-step explanation:
In a common-size balance sheet, all accounts are expressed as a percentage of total assets. This financial statement analysis tool helps users easily compare the balance sheets of different-sized companies by standardizing the information. To illustrate, based on the provided information where assets include reserves of 30, bonds of 50, and loans of 50, and liabilities comprise deposits of 300 and equity of 30, each line item would be represented as a percentage of the total assets (130 in this case).
For example, the reserve percentage is calculated by taking the reserves (30) and dividing them by the total assets (130), resulting in approximately 23.08%. Similarly, bonds and loans would each represent about 38.46% of the total assets. This method provides a clear view of the company's financial structure and is particularly useful for comparing companies of different sizes.