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Understanding Comparative Statements in Accounts

Comparative statement refers to a document which compares a prior period statements with any particular financial statement.

The figures of two or more years are placed side-by-side columns so that the investors can keep the record of the progress of the company, compare it with industry’s rivals and also enable them to identify trends.

Understanding Comparative Statements in Accounts


 The students, while taking assignment help, must keep in mind the importance of Comparative Statements:-

      To make the data simpler and more understandable: Comparative Financial Statement aims at putting the data simpler and easy to compare, for a number of years. The comparison becomes easy when the data for a number of years are put side-by-side.

 

      Easy to draw conclusions: The presentation of Comparative Statements makes it easy for the analyst to draw conclusions financial health of the concern.

 

      To indicate the trend: The trend of change can be indicated by Comparative financial statements as they put the figures of revenue from operations, production, expenses and profits, etc.

side-by-side for number of years. For instance, if revenue from operations are increasing as a result of increase in profit margin, it will indicate the healthy growth of the business trend.

 

      To indicate the strong points and weak points of the concern: The strong points and weak points of the firm for a number of years can be indicated through comparison of financial statements. Management can take corrective measures after investigating the reasons for the weakness of the concern.

 

      To compare the firm’s performance with average performance of the industry: Comparative financial statements provide help to a business unit so that it can compare its performance with the industry’s average performance (that is, a particular business having all the firms).

 

      To help in forecasting: The profitability and soundness of the business over a period can be forecasted by the management with the help of the comparative study of changes in the key figures.

 

The “American Institute of Certified Public Accountants” states that the nature and the trends of current changes affecting the enterprise can be presented more vividly through the presentation of Comparative Financial Statements in reports which may be annual or others as well.

 Such presentation puts emphasis on the fact that the statements for a single period are not as significant as the statements for a series of periods.

The following techniques of presenting Comparative Statements must be kept in mind while taking accounting assignment help:-

1.   To show the absolute data in Rupee amount only:

 Sometimes, comparative financial statements show only rupee amounts for various periods. For example, expenses in 2017 is 200,000 and in 2018 is 250,000.

2.   To show the increases and decreases in absolute data in terms of Money Values:

 For example, comparing the balances of 2017 and 2018 for revenue from operations. In 2018, revenue from operations increased by 50,000 which was more as compared to 2017’s balance of revenue from operation.

 

3.   To show the increases and decreases in absolute data in terms of Percentage:

 For instance, in 2015 revenue from operations increased by 25% which was more than the percentage of revenue from operation in 2014.

4.   Comparisons expressed in Ratios:

The changes over the years in terms of ratio can be reflected through an additional column which is provided in the comparative financial statements.

The current years date is to be divided by the date of the previous year. A ratio of less than 1 will indicate a decrease in the current year whereas a ratio of more than 1 will indicate an increase in current year, as compared to previous year.

For example, if revenue from operations in 2014 are 200,000 and revenue from operation in 2015 are 250,000, then its ratios will be 1.25.

5.   Use of cumulative figures and averages:

For instance, revenue from operation in 2013, 2014, 2015, 2016 are 210,000; 180,000; 200,000; 250,000 respectively, then its average revenue from operations will be 210,000.

 The individual figure of each year’s revenue from operations can be compared using average figure of revenue from operation. The deviation of revenue from operations of each year can also be calculated using this method.

Advantages of Comparative Balance Sheet:-

      The extent of increase or decrease in various items of balance sheet and the balances of accounts as on different dates are shown by the comparative balance sheet. While the balances of accounts on a particular date are shown by a single year’s balance sheet.

      A comparative balance sheet emphasizes on change whereas a single year’s balance sheet focuses on status.

      A single year’s balance sheet is not as useful as a comparative balance sheet, because a comparative balance sheet enables a financial analyst to study the size, nature and direction of change that is, increase or decrease in different items of balance sheet. It is also helpful in studying the trends in business concern.

      The Statement of Profit and Loss and the Balance Sheet is connected with the help of Comparative Balance Sheet. It is so because the result of operating activities of a business are presented by the Statement of profit and Loss, while the effect of operating activities on liabilities, assets and capitals are shown by the Comparative balance sheet.

A Comparative Balance Sheet of Profit and Loss reflects the net profit for a number of years as to take out the absolute data in the form of money as well as percentage.

Objectives of Comparative Balance Sheet of Profit and Loss, which must be understood while taking assignment help, are:-

      The income and expenditures for two or more years are easily compared.

      The increase and decrease in the income and expenditure in terms of rupee as well as in percentage from one year to another, are analyzed.

      The increases and decrease in the enterprise’s profits can be analyzed.

      The profitability of the business concern can be forecasted.

Hence effective accounting assignment help can be taken with the help of the above mentioned points.