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Question
In preparing Common-size Balance Sheet, each item of Balance Sheet is expressed as % of ______.
Options
Non-current Assets.
Current Assets.
Non-current Liabilities.
Total Assets.
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Solution
In preparing Common-size Balance Sheet, each item of Balance Sheet is expressed as % of total assets.
Explanation:
While preparing a common-size balance sheet, the total assets (which is always equal to the total equity and Liabilities) is taken as the common base and assumed to be 100%. Every individual asset item is then divided by Total Assets, and every individual equity or liability item is divided by Total Liabilities and Equity to express them as a relative percentage of that total. This vertical analysis allows for an easy comparison of financial structures between different accounting periods or different companies.
