Many ratios require an average be used for the balance sheet numbers because the
A)income statement refers to a point in time.
B)accountants may have made errors in the financial statements.
C)balance sheet numbers are at a point in time and are being compared to an income statement number that covers a period of time.
D)income statement numbers represent a point in time and are being compared to a balance sheet number that covers a period of time.

Question

Quizplus · Accepted Answer

Ratios compare numbers from different financial statements or time periods. The balance sheet provides a snapshot of the company's financial position at a specific point in time, while the income statement covers a period of time (usually a year). To make a meaningful comparison, an average is often used for the balance sheet numbers. This average can be calculated using the beginning and ending balance sheet numbers, or by using the average of the balance sheet numbers for the period.

Many Ratios Require an Average Be Used for the Balance