Question : Which of the following statements are true? A) Common-size balance sheet shows relative value of the various items. B) In the common size income statement, each product is represented as a percentage of the net sales figure. C) Common size income statements represent the various elements as a percentage of the gross profit.
Option 1: Both A and B
Option 2: Both A and C
Option 3: Both B and C
Option 4: A, B, C
Correct Answer: Both A and B
Solution : A balance sheet with a common size shows the absolute amount as well as the proportionate percentage of total assets, total liabilities, and equity accounts.
An income statement that is expressed with each line item as a percentage of revenue or sales is known as a common size income statement. When performing a vertical analysis, each line item in a financial statement is represented as a percentage of the statement's base figure.
Hence the correct answer is option 1.
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