Question

cash and accounts receivable for adams company are provided below: current year prior year cash $70,000 $50,000 accounts receivable (net) 70,400 80,000 based on this information, what is the amount and percentage of increase or decrease that would be shown with horizontal analysis? enter a decrease using a minus sign before the amount and the percentage.

Answer 1

The cash account of Adams Company shows an increase of $20,000 or 40%, and accounts receivable shows a decrease of $9,600 or 12%. These figures are determined by performing a horizontal analysis comparing year-to-year financial data.

Step-by-step explanation:

The student has provided the data for cash and accounts receivable for two different years for Adams Company and has asked for the horizontal analysis to be performed on this data. Horizontal analysis, also known as trend analysis, is used to compare financial data over time by calculating both the amount and percentage change from one period to the next.

To calculate this, we take the current year’s figure, subtract the previous year’s figure, and then divide by the previous year’s figure. For cash, the increase is calculated as follows: ($70,000 current year – $50,000 prior year) / $50,000 prior year = $20,000 / $50,000 = 0.4, or a 40% increase. For accounts receivable, the decrease is calculated as: ($70,400 current year – $80,000 prior year) / $80,000 prior year = – $9,600 / $80,000 = – 0.12, or a 12% decrease.

Note that in financial reporting, a negative percentage is often shown without the minus sign, but since the instructions specify to include it, we acknowledge this notation preference.

Answer 2

To perform a horizontal analysis, you need to compare the current year's financial data to the prior year's data and calculate both the dollar amount and the percentage change for each item.

Here's how to do it for cash and accounts receivable:

1. Calculate the dollar amount change:

Dollar Amount Change = Current Year Amount - Prior Year Amount

For cash:

Dollar Amount Change (Cash) = $70,000 - $50,000 = $20,000 (increase)

For accounts receivable (net):

Dollar Amount Change (Accounts Receivable) = $70,400 - $80,000 = -$9,600 (decrease)

2. Calculate the percentage change:

Percentage Change = (Dollar Amount Change / Prior Year Amount) * 100%

For cash:

Percentage Change (Cash) = ($20,000 / $50,000) * 100% = 40% increase

For accounts receivable (net):

Percentage Change (Accounts Receivable) = (-$9,600 / $80,000) * 100% = -12% decrease

So, the horizontal analysis would show the following changes:

- Cash increased by $20,000, which is a 40% increase.

- Accounts receivable (net) decreased by $9,600, which is a 12% decrease.