I had to share that one with u Which of the following represents the correct method of constructing common-sized financial statements? A. All balance sheet items are indexed to total equity while income statement items are indexed to net sales. B. All balance sheet items are indexed to the total of liabilities and owner’s equity while income statement items are indexed to net sales. C. All balance sheet items are indexed to total assets while income statement items are indexed to gross sales. D. All balance sheet items are indexed to total equity while income statement items are indexed to net income.
That’s B.
I agree with map1… B.
The answer is half end part of choice B and half beginning part of choice C. All b/s items are indexed to total assets while income statement items are indexed to net sales.
And total liabilities and owner’s equity is equal to what? Thu Thuy Wrote: ------------------------------------------------------- > The answer is half end part of choice B and half > beginning part of choice C. All b/s items are > indexed to total assets while income statement > items are indexed to net sales.
Total asset= total liability+total owner’s equity
Map 1, of course A = L + OE but in study note it said indexed to total assets so we obey it guidance. Maybe the reason is simple calculation
It is B
sure it is B it is just a BIG gross trap for those who think they can dash through innocent looking Q by just skimming instead of analysing …
Why is C wrong? I would have marked C as the answer. Read the following excerpt from the following source: http://sdc-usa.com/com-Size.htm " The Common Size Income Statement This report includes two additional columns for each period. Percent of gross sales This column shows all accounts as a percentage of sales. Think of it as a break-down of where each sales dollar goes."
Because in C income statement items are indexed to gross sales…which is obviously not correct.
Read my post carefully strange… I have provided a link which states exactly that. Why is this discrepancy? What is the difference between gross and net sales/revenue?
The Gross Sales includes returns and/or discounts on products. Net Sales does not.
That means Lets say Gross sales = $100 discount (10%) = ($10) Net sales = $90 Now we will use revenue = $90 as the indexing point for CS P&L. Is my understanding correct? Thanks friends.
Anupamjain, What is indicated in the link that you provided is a bit ambiguous. Usually, the base amount for the balance sheet is usually total assets (which is the same number as total liabilities plus stockholders’ equity), and for the income statement it is usually net sales or revenues. Theoretically, you could use any figure on the revenues side as a base data. In practice, people used net sales or revenues.
The ans is B … But the “gross sales” got me a bit confused there… The Income statement sure may not contain returned sales or discounts… but they do form a sizable percent of sales and esp during times of product callbacks from customers… I dunno much about the US accountancy procedures but is there any comprehensive financial statement before the Income Statement ? (like the Trading A/c if one were to follow the British system)
I say B…Total of liabilities and owners equity did it for me
bleedfin Wrote: ------------------------------------------------------- > I say B…Total of liabilities and owners equity > did it for me then u r lucky cause that is not enough thinking