Question

Assertion (A): Accounting ratio is an expression of arithmetical relationship between two related items of accounting data.

Reason (R): Ratio is an analytical tool of data. When ratio analysis is applied to accounting data, the result is termed an accounting ratio.

In the context of the above two statements, which option is correct?

Options

• Assertion (A) and Reason (R) are correct, but Reason (R) is not the correct explanation of Assertion (A).

• Both Assertion (A) and Reason (R) are correct, and Reason (R) is the correct explanation of Assertion (А).

• Assertion (A) is correct, and Reason (R) is incorrect.

• Assertion (A) is not correct but the Reason (R) is correct.

Answer 1

Both Assertion (A) and Reason (R) are correct, and Reason (R) is the correct explanation of Assertion (А).

Explanation:

Assertion (A) is correct because an accounting ratio expresses the mathematical relationship between two financial items. Reason (R) is also correct and provides the right explanation because it describes how the analytical tool of a ratio becomes an “accounting ratio” when applied to financial data.