Perform a vertical analysis for the entry "Sales Returns and Allowances" on the portion of an income statement shown below. (Round to the nearest tenth) Revenue Gross Sales $ 288,000 Less: Sales Returns and Allowances 7,600 Net Sales 280,400 Cost of Good Sold Merchandise Inventory, Jan. 1 47,500 Net purchases 64,300 Goods Available for Sale 112,375 Less: Merchandise Inventory, Dec. 31 77,800 Cost of Goods Sold 34,575 Gross Margin $245,825
| Revenue | |
| Gross Sales |
$ 288,000 |
| Less: Sales Returns and Allowances |
7,600 |
| Net Sales |
280,400 |
| Cost of Good Sold | |
| Merchandise Inventory, Jan. 1 |
47,500 |
| Net purchases |
64,300 |
| Goods Available for Sale |
112,375 |
| Less: Merchandise Inventory, Dec. 31 |
77,800 |
| Cost of Goods Sold |
34,575 |
| Gross Margin |
$245,825
|
VERTICAL ANALYSIS OF BALANCE SHEET
Vertical analysis is a proportional analysis of financial statements.
Vertical Analysis is a form of financial statement analysis where the line items on a company’s income statement or balance sheet are expressed as a percentage of a base figure.
In Vertical Analysis of balance sheet base figure is always Total Assets or Total Liabilities.
In Vertical Analysis of Income Statement base figure is always Total Revenue or Total Sales.
Vertical Analysis formula for Balance sheet :
= (Balance Sheet Item ÷ Total Assets) * 100
Vertical Analysis formula for Income Statement :
= (Income Statement Item ÷ Total Sales Revenue) * 100
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