Question

Financial statement ratios support informed judgments and decision making most effectively when: compared to an industry average for the most recent year. the trend of entity data is compared to industry data for the most recent year. viewed as a trend of entity data. the trend of entity data is compared to the trend of industry data. viewed for a single year.

Answer 1

Answer:

The correct answer is D. when the trend of entity data is compared to the trend of industry data.

Explanation:

For all of the above to be fulfilled and for accounting information to make sense to internal and external users, it must be objective and useful, since the analysis is often complicated due to “the substantial flexibility inherent in the set of rules and principles that the accountants follow in the preparation of the financial statements of the company ”. External users, with the government as the most important actor, require clarity and veracity for the calculation of taxes and levies; the second, that is, the inmates, must find the reflection of detailed behavior at a reasonable level of business centers or lines of products and services, costs and expenses.

When talking about a reasonable level, reference is made to the detail that each account must have in order to make sense of the value and concept of each one. In the case of sales, having separate business lines, helps to measure the result of commercial teams and know the weight within the total to make decisions, for example, with a larger or smaller marketing budget. On the detail in costs and expenses, a criterion of relevance is required to put into perspective those that most impact the final value or that, due to their importance, should be closely monitored; it makes no sense to have an accounting account for every expense in coffee shop or day-to-day stationery.