An income statement where every line item is represented as a percentage of total sales is known as
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Answer: C. common size income statement
Explanation
A common size income statement expresses every line item as a percentage of sales. Total sales or revenue serves as the base figure equal to one hundred percent. This format standardizes financial data for comparative trend analysis over time. Vertical analysis transforms financial statements into percentage-based reports. Common size statements eliminate scale differences between large and small companies. Cost of goods sold and operating expenses appear relative to total revenue.
Financial analysts use common size statements to evaluate cost structures across firms. Management tracks expense ratios over multiple years to identify efficiency gains. Investors compare common size percentages against industry benchmarks easily. Option A is incorrect because balance sheets analyze assets and liabilities, not sales. Option B is wrong since standard income statements use absolute monetary values. Option D is incorrect because balance sheets do not express lines as sales percentages.
- Subject
- Accounting and Finance
- Category
- Accounting
- Topic
- —
- Difficulty
- medium
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