Question

In 'Common size income statement' each item is expressed as a percentage of ____

• A. Total Income
• B. Total Expenses
• C. Profit After Tax
• D. Revenue from Operations

Hint:

Common-Size Statement Bases: - Income Statement: Revenue from Operations (Net Sales) = 100%. - Balance Sheet: Total Assets = 100% and Total Equity & Liabilities = 100%.

Answer 1

The Correct Option is D

Step 1: Understand Common-Size Income Statement:
A common-size income statement presents each line item as a percentage of a base figure, allowing for easy comparison of performance across different periods or companies, regardless of size.
Step 2: Identify the Base Figure for Income Statement:
In a common-size income statement, the standard practice is to use Net Sales or Revenue from Operations as the base figure (100\%). All other items, including cost of revenue, gross profit, operating expenses, operating profit, taxes, and net profit, are then expressed as a percentage of this base.
Step 3: Evaluate the Options:
(A) Total Income: Could include non-operating income; Revenue from Operations is the primary operational base.
(B) Total Expenses: Not used as the base.
(C) Profit After Tax: This is a result, not the base.
(D) Revenue from Operations (Net Sales): This is the standard base (100\%) for common-size income statements.
Conclusion:
In a common-size income statement, each item is expressed as a percentage of Revenue from Operations.