Common Size Balance Sheet

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A common size balance sheet shows all quantities as a percentage of assets while an income statement uses sales as the base amount.

A common size balance sheet is a financial statement that presents all items on the balance sheet as a percentage of a base amount. This base amount is typically total assets. Each item on the balance sheet, such as cash, accounts receivable, inventory, and long-term debt, is expressed as a percentage of total assets.

The purpose of a common size balance sheet is to facilitate analysis and comparison of financial statements over time or between different companies. By expressing items as a percentage of total assets, it helps to identify trends and changes in the composition of a company's assets.

On the other hand, an income statement shows a company's revenues, expenses, gains, and losses over a specific period. Unlike a common size balance sheet, the base amount used in an income statement is typically sales or revenue. Each item on the income statement, such as cost of goods sold, operating expenses, interest expense, and net income, is expressed as a percentage of sales.

Using sales as the base amount on the income statement helps to analyze the relationship between each item and the company's revenue. It allows for the assessment of the profitability and efficiency of the company's operations. By expressing expenses and other items as a percentage of sales, it becomes easier to compare the income statement of a company over time or against industry benchmarks.

To summarize, a common size balance sheet uses total assets as the base amount, expressing all items as a percentage of assets. An income statement, on the other hand, uses sales or revenue as the base amount, expressing each item as a percentage of sales. Therefore, the correct answer to the question is:

A. sales, assets