A comparative financial statement is used to compare the financial statements of the same company over different periods of time or the financial statements of different companies. There are two important characteristics of a comparative financial statement. The first is that all accounts are converted from numbers to percentages. The "total assets" line on the balance sheet, and the "total revenue" line on the income statement should be given a value of 100%. All of the other lines on the balance sheet should be reported as a percentage of total assets (this means that the liabilities section plus the owners' equity section should total 100% as well). Similarly, all of the other lines on the income statement should be measured as a percentage of total revenue.
The second important characteristic is that each line of the financial statement should be in line with the corresponding line from the financial statement from other years or another company. This makes the financial statements easiy comparable at a quick glance. This may require you to combine some accounts. For example, if one company has seperate accounts for both machinery and equipment and the other company has a one account, the accounts for the first company should be merged and reported together.
Comparative Financial Statements
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