Question

Choosing a common base (as 100), for example, sales revenue total may be taken as base (100) in case of income statement, and total assets or total liabilities (100) in case of balance sheet, is step ____ in the procedure adopted for preparing common size income statements.

• A. 1
• B. 2
• C. 3
• D. 4

Answer 1

The correct option is B 2

Choosing a common base for example sales revenue total may ne taken as base (100) in case of income statement, and total assets or total liabilities in case of balance sheet, in step 2 in the procedure adopted for preparing common size income statements. Common-size Income statement is the vertical analysis of Income Statement.

A vertical analysis is shows all items as percentages and not in absolute figures which provides better comparison. Each line item is expressed as a percentage figure of the base figure within the statement. The base is always shown as 100.