Question

When focusing on changes, you should consider changes from period to period in:

a) recorded balances
b) relationships between balances
c) balances of other nonsimilar companies
d) both a and b
e) all of the above

Answer 1

The correct answer to the question is d) both a and b, which means focusing on changes in recorded balances and the relationships between those balances.

Step-by-step explanation:

When focusing on changes, you should consider changes from period to period in:

1. Recorded balances
2. Relationships between balances

This means, when analyzing changes in a company's financial health or performance, it's important to track how specific financial metrics have evolved over time (recorded balances) and how different aspects of the financial statements relate to each other (relationships between balances). Comparing balances with other nonsimilar companies (option c) is less likely to provide useful insights due to differences in industry, scale, and operations. Therefore, the correct answer is d) both a and b.