Ratios that compare an income statement account with a balance sheet account should express the balance sheet account as an average of the beginning and ending balances.

Question

Quizplus · Accepted Answer

Ratios that compare income statement accounts (such as revenue or expenses) with balance sheet accounts (such as assets or liabilities) require a balance sheet figure that represents the average balance for the period, which is calculated by adding the beginning and ending balance and dividing by 2. This provides a more accurate representation of the account's impact on the income statement.

Ratios That Compare an Income Statement Account with a Balance