Which of the following statements regarding horizontal analysis is not true?
A)Percentage analysis involves computing the percentage relationship between two amounts.
B)A horizontal analysis of cost of goods sold on the income statement includes dividing gross margin by total revenue.
C)Horizontal analysis attempts to eliminate the materiality problem of comparing firms of different sizes.
D)In horizontal percentage analysis, a financial statement line item is expressed as a percentage of the previous balance of the same item.

Question

Quizplus · Accepted Answer

The statement "A horizontal analysis of cost of goods sold on the income statement includes dividing gross margin by total revenue" is not true. In horizontal analysis, cost of goods sold would be analyzed by comparing the current year's cost of goods sold to the previous year's cost of goods sold, not by dividing gross margin by total revenue.

Which of the Following Statements Regarding Horizontal Analysis Is Not