Managers Look at the Financial Statement to See How Well

question 101

Essay

Managers look at the financial statement to see how well a company is doing,but the account balances alone do not tell managers enough.Horizontal and trend analyses are commonly used by managers to help assess the company's financial strengths and weaknesses.
Required:

Explain what horizontal analysis and trend analysis are and how the numbers are used. What are the steps in preparing horizontal and trend analysis?

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Definitions:

Straight-Line Method

A method of allocating the cost of an asset evenly over its useful life.

Double-Declining-Balance

A method of accelerated depreciation that doubles the straight-line depreciation rate and applies it to the reducing book value each year.

Straight-Line Depreciation

A method of allocating the cost of a tangible asset over its useful life in equal annual amounts, making the expense predictable.

Accounting Principles

Fundamental guidelines or rules that govern the financial reporting and accounting practices of companies, ensuring accuracy, consistency, and fairness in financial statements.