The Least Effective Method for Comparing Account Balances from Period

question 43

Multiple Choice

The least effective method for comparing account balances from period to period is:

• A) To focus on and calculate changes in the actual financial statement numbers (raw data)
• B) Perform horizontal analysis
• C) Study the statement of cash flows
• D) None of the above

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Definitions:

Credit Period

The time frame allowed by a creditor for a debtor to pay an outstanding bill or loan without incurring penalties or interest.

Cash Discount

An incentive offered by sellers to purchasers for paying an invoice promptly, usually defined as a percentage reduction in the invoice amount.

EOQ Model

Economic Order Quantity model; an inventory management method used to determine the optimum order quantity that minimizes the total inventory holding costs and ordering costs.

Shortage Costs

Costs that fall with increases in the level of investment in current assets.