Comparative Statement and their importance

The comparative statement is known as a document that helps in comparing a prior period statement with any particular financial statement.

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

 The students must focus on the importance of Comparative Statements while taking assignment help: –

  • To make the data simpler and more understandable: 

The aim of the Comparative Financial Statement is to make 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 and the financial health of the concern.

  • To indicate the trend: 

The trend of change can be specified by Comparative financial statements since they put the figures of revenue from operations, production, expenses and profits, etc. side-by-side for a number of years. 

For example, if revenue from operations is rising as a result of an increase in profit margin, it will show the healthy growth of the business trend.

  • To indicate the strong points and weak points of the concern: 

The weak points and strong points of the firm for a number of years can be specified by comparing the 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 give help to a business unit in order to compare its performance with the average performance of the industry (that is, a particular business having all the firms).

  • To help in forecasting: 

The soundness and profitability of the business over a period can be forecasted through 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 trends and nature of current changes that affect the enterprise can be presented more vividly through the presentation of Comparative Financial Statements in reports that may be annual or others as well. 

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

Now we should focus on the following techniques of presenting Comparative Statements that must be kept in mind while taking accounting assignment help: 

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

At times, comparative financial statements show only rupee amounts for various periods. For example, expenses in 2014 is 300,000 and in 2015 is 350,000.

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

For instance, comparing the balances of 2016 and 2017 for revenue from operations. In 2017, revenue from operations rises by 50,000 which was more as compared to 2016’s balance of revenue from the operation. 

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

For example, in 2016 revenue from operations rises by 25% which was more than the percentage of revenue from operation in 2015.

  1. Comparisons expressed in Ratios: 

The changes over the years in terms of ratio can be reflected with the help of an additional column that is provided in the comparative financial statements. The current year’s date is to be divided by the date of the previous year. 

A ratio of less than 1 will indicate a fall in the current year while a ratio of more than 1 will indicate a rise in the current year when compared to the previous year. 

For example, if revenue from operations in 2015 is 300,000 and revenue from operation in 2016 is 350,000, then its ratios will be 1.25. 

  1. Use of cumulative figures and averages: 

For instance, revenue from operation in 2010, 2011, 2012, 2013 are 310,000; 280,000; 500,000; 450,000 respectively, then its average revenue from operations will be 210,000. 

The individual figure of each year’s revenue from operations can be compared by an average figure of revenue from the 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 on different dates are reflected by the comparative balance sheet. Whereas the balances of accounts on a particular date are reflected by a single year’s balance sheet.
  • The Statement of Profit and Loss and the Balance Sheet relates to the help of Comparative Balance Sheet. This is so because the result of operating activities of a business are presented by the Statement of profit and Loss, 

whereas the effect of operating activities on liabilities, assets, and capitals are reflected by the Comparative balance sheet.

  • A comparative balance sheet puts emphasis on change while a single year’s balance sheet focuses on status.
  • A single year’s balance sheet is not as helpful as a comparative balance sheet, since 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 useful in studying the trends in business concern.

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

Now let us see some of the objectives of Comparative Balance Sheet of Profit and Loss, that must be understood while taking assignment help, are: –

  • The income and expenditures for two or more years are simply compared.
  • The rise and fall in the enterprise’s profits can be easily analyzed.
  • The rise and fall in the income and expenditure in terms of rupee as well as in percentage from one year to another, are analyzed.
  • The profitability of the business concern can be easily forecasted.

13 Low-cost Learning Sites But the Best Quality

Therefore, effective accounting assignment help can be taken while referring to the above-mentioned points.

Leave a Comment