Final answer:
The correct answer is option c. Vertical analysis expresses income statement accounts as a percentage of sales and balance sheet accounts as a percentage of total assets, which is option c. .
Step-by-step explanation:
When using vertical analysis, we express income statement accounts as a percentage of sales and balance sheet accounts as a percentage of total assets. This method of financial statement analysis helps us to understand the relative size of each account within a financial statement and compare it to other items within the same period or over multiple periods. For instance, if we look at a T-account, which details a balance sheet in a two-column format resembling a T-shape with assets on the left and liabilities on the right, the use of vertical analysis would mean expressing each asset and liability as a percentage of the total assets on the balance sheet.
Returning to the question posed by the student, the correct option is c. income statement accounts as a percentage of sales and balance sheet accounts as a percentage of total assets. By comparing all income statement items to sales, we get a discernable pattern of how different expenses and income sources contribute to the overall revenue. Similarly, expressing balance sheet items as a percentage of total assets allows us to see the proportion each item contributes to the total economic resources controlled by the company.