Question

Common-size statements ________.

A) allow the users to compare numbers in relative terms rather than absolute amounts
B) report dollar amounts and percentages
C) create a dollar value bias
D) show the same percentages that appear in a horizontal analysis

Answer 1

The correct answer is letter "A": allow the users to compare numbers in relative terms rather than absolute amounts.

Step-by-step explanation:

A Common-Size Financial Statement shows all Balance sheet items as a percentage of a common base calculation measuring them in relative rather than absolute amounts. Generally, the Common Size statement uses Total Sales Revenue as the common base. It will contrast any other factor such as Cost of Goods Sold or Operating Expenses or anything else it intends to measure as a percentage of total sales revenue.