Accounting Quiz 3 Question 1 Using The Following Selected It

Accounting Iitest 3question 1using The Following Selected Items From

Using the following selected items from the comparative balance sheet of Anders Company, illustrate horizontal and vertical analysis. December 31, 2016 December 31, 2015 Accounts Receivable $900,000 $600,000 Inventory $975,000 Total Assets $4,000,000 $2,500,000

Based on the given financial data, perform a horizontal analysis to compare the changes from 2015 to 2016 and a vertical analysis to understand the proportion of each account relative to total assets for each year.

Sample Paper For Above instruction

Introduction

In assessing a company's financial performance over time and its financial position at specific points, horizontal and vertical analyses are fundamental analytical tools. Horizontal analysis evaluates the percentage change in account balances over periods, providing insights into growth trends, while vertical analysis expresses each item as a percentage of a base figure, facilitating comparison across companies and time periods. This paper demonstrates these analyses using selected financial data of Anders Company for the years 2015 and 2016.

Horizontal Analysis of Anders Company

The horizontal analysis compares the account balances of 2016 to those of 2015, calculating the percentage change to evaluate growth or decline. For example, accounts receivable increased from $600,000 in 2015 to $900,000 in 2016. The percentage change is calculated as:

Percentage Change = (2016 Balance - 2015 Balance) / 2015 Balance × 100

Applying this formula:

Accounts Receivable: ($900,000 - $600,000) / $600,000 × 100 = 50% increase

Similarly, total assets increased from $2,500,000 in 2015 to $4,000,000 in 2016, representing:

($4,000,000 - $2,500,000) / $2,500,000 × 100 = 60% increase

While Inventory data for 2015 is missing, assuming it was significantly lower, the trend indicates substantial growth. Such increases in receivables and assets suggest expansion in company operations.

Vertical Analysis of Anders Company

Vertical analysis expresses each account as a percentage of total assets for each year. This allows for proportional comparisons within the financial statement. Calculations for 2016 are as follows:

Accounts Receivable as % of Total Assets in 2016 = ($900,000 / $4,000,000) × 100 = 22.5%

For 2015:

Accounts Receivable as % of Total Assets in 2015 = ($600,000 / $2,500,000) × 100 = 24%

Similarly, Inventory's percentage in 2016 is:

($975,000 / $4,000,000) × 100 = 24.38%

Analysis of these percentages indicates that receivables constitute a slightly lower proportion relative to total assets in 2016 compared to 2015, whereas inventory's proportion is significant and may warrant further analysis.

Conclusion

The horizontal analysis reveals a notable growth in assets and receivables, reflecting increased operational scale. The vertical analysis highlights the proportionate significance of accounts receivable and inventory within total assets. Together, these analyses provide a comprehensive view of Anders Company's financial evolution between 2015 and 2016, serving as vital tools for internal management and external stakeholders to assess financial health and operational trends.

References

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