With regard to trend analysis over time,which of the following statements is TRUE?
A)We often look at the past five years of financial statements to establish trends and then predict future performance based on these trends.
B)To look at trends over time requires that we examine a financial statement at one point in time.
C)The net income last year was $20,000 and the past five years has shown an increase of 10% on average for each of these five years.The predicted net income for next year is still $20,000.
D)It is better to predict future performance by basing it solely on net income than on all the individual accounts.

Question

Quizplus · Accepted Answer

Trend analysis looks at past financial statements to establish patterns and predict future performance. It is common to look at the past five years to establish trends. Option B is incorrect as trend analysis looks at changes over time. Option C is incorrect as if the net income has increased by an average of 10% over the past five years, the predicted net income for next year would be higher than $20,000. Option D is incorrect as predicting future performance based solely on net income may not provide a comprehensive picture of the company's financial health.

With Regard to Trend Analysis Over Time,which of the Following