Why do differences in the accounting practices of firms limit the usefulness of financial ratios?
What will be an ideal response?
1. Accounting practices differ widely among firms. For example, different firms choose different methods to
depreciate their fixed assets. Differences such as these can make the computed ratios of different firms difficult to
compare.
2. Financial ratios can be too high or too low relative to the industry average for a reason.
3. Many firms experience seasonal changes in their operations. As a result, their balance sheet entries and their
corresponding ratios will vary with the time of year the statements are prepared. To avoid this problem, an average
account balance should be used (one calculated on the basis of several months or quarters during the year) rather than
the year-end account balance.
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A(n) ________ is a list of all account balances in two columns--one labeled Debit and one labeled Credit
a. trial balance b. statement of owner's equity c. chart of account d. income statement
According to the factor-endowment theory, which factor is the ultimate determinant of comparative advantage?
a. productivities of labor inputs b. tastes and preferences among nations c. changes in technologies over time d. relative differences in resources
Having a compensating balance increases a company's liquidity
Indicate whether the statement is true or false
Chubb Company paid cash to purchase equipment on January 1, Year 1. Select the answer that shows how the recognition of depreciation expense in Year 2 would affect assets, liabilities, equity, net income, and cash flows. AssetsLiabilitiesEquityNet IncomeCash flowA.+NA+?NAB.??NA++C.?NA???D.?NA??NA
A. option A B. option B C. option C D. option D