Horizontal analysis is performed when:
A)total assets are set at 100% and all other balances are a percentage of total assets.
B)the percentage change in the balance sheet and income statement numbers is computed for one period to the next.
C)there is a need to calculate and compare key ratios from period to period.
D)detecting fraud through financial statements demands calculation of key ratios and comparing them from period to period.

Question

Quizplus · Accepted Answer

Horizontal analysis is a technique of financial statement analysis in which the percentage change in the balance sheet and income statement numbers is computed for one period to the next. It helps in analyzing trends over time and identifying areas that need attention or improvement. Choice A is incorrect because total assets may not always be the base for calculating percentages. Choice C is incorrect because calculating and comparing key ratios is vertical analysis, not horizontal analysis. Choice D is incorrect because while detecting fraud may involve ratio analysis, it is not a primary reason for performing horizontal analysis.

Horizontal Analysis Is Performed When