Nathaniel is the financial manager for his company. He is comparing income statements from the past three years to identify trends in the cost of goods sold and other expenses. Nathaniel is using the _____ method to compare financial statements.
A) activitybased costing
B) horizontal analysis
C) accrualbasis accounting
D) vertical analysis

Question

Nathaniel is the financial manager for his company. He is comparing income statements from the past three years to identify trends in the cost of goods sold and other expenses. Nathaniel is using the _____ method to compare financial statements.
A) activity­based costing
B) horizontal analysis
C) accrual­basis accounting
D) vertical analysis

Quizplus · Accepted Answer

Nathaniel is comparing income statements from the past three years to identify trends, which means he is conducting a horizontal analysis. Option A, activity-based costing, focuses on identifying and allocating costs based on activities. Option C, accrual-basis accounting, is a method of accounting that records income when earned and expenses when incurred. Option D, vertical analysis, involves comparing items on a financial statement to a base number or total. While Nathaniel may also use vertical analysis in his comparison, the question specifies that he is primarily using a horizontal analysis method.

Nathaniel Is the Financial Manager for His Company