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C H A P T E R

Comparative Statements and

Common-Size Statements

MEANING OF KEY TERMS USED IN THE CHAPTER

1. Comparative Financial Statements
Comparative Financial Statements are the statements prepared to compare items or components of:
• Financial Statements of an enterprise for two or more successive accounting periods (intra-firm), or
• Financial Statements of different enterprises for the same accounting periods (inter-firm).
It is prepared separately for Balance Sheet and Statement of Profit and Loss.
2. Comparative Balance Sheet
Comparative Balance Sheet is the horizontal analysis of Balance Sheet in which each item of
Assets, Equity and Liabilities is analysed horizontally for two or more accounting periods.
3. Comparative Income Statement (Statement of Profit and Loss)
Comparative Income Statement is the horizontal analysis of Statement of Profit and Loss in which
each item of Revenue and Expenses is analysed horizontally for two or more accounting periods.
4. Common-size Financial Statements
Common-size Financial Statements are the statements in which amounts of individual items of
Balance Sheet and Statement of Profit and Loss for two or more years are written. These amounts
are further converted into percentage to some common base.
5. Common-size Balance Sheet
Common-size Balance Sheet is a statement prepared to show each item or component of Balance
Sheet as a percentage of total of Equity and Liabilities or total Assets taken as 100.
6. Common-size Income Statement
Common-size Income Statement is prepared to show each item or component of Statement of Profit
and Loss as a percentage of Revenue from Operations, i.e., Net Sales taken as 100.

SUMMARY OF THE CHAPTER

• Comparative Financial Statement is a tool of financial analysis that shows change in each item of the
financial statements (Balance Sheet and Statement of Profit and Loss) in both absolute amount and
percentage terms, taking the item in previous accounting period as base.
• Significance or Purposes of Comparative Financial Statements
1. To know the nature of changes influencing financial position.
2. To know the weaknesses and strengths about liquidity, profitability and solvency of the enterprise.
3. To forecast and plan.
4. To know the movements of key financial statistics.
• Tools for Comparison
1. Comparative Balance Sheet. 2. Comparative Income Statement, i.e., Statement of Profit and Loss.
3. Common-size Balance Sheet. 4. Common-size Income Statement , i.e., Statement of Profit and Loss.