Question

At the end of Year 1, the balance sheet for the Rich Food Restaurant showed cash at $20,000. At the end of Year 2, the balance sheet showed $40,000 in cash. A horizontal analysis of the balance sheets would show the absolute difference between the two years as:

Answer 1

Answer:

$20,000

Explanation:

When a financial statement analysis technique shows the changes of income statement or balance sheet items over the period of time with the same financial statements, it is called Horizontal Analysis. It shows the firm's capability of either increasing or decreasing of assets or expenses over the period. Here,

                                      Balance Sheet

Account Title      Year 1        Year 2        Changes (Increase/Decrease)

Cash                 $20,000    $40,000         $20,000 Increase