Methods of Analysis
Methods of Analysis
Carly Ayers
ACC 281 Accounting Concepts for Health Care Professionals
Professor Beverly Bulliner
January 21, 2013
Methods of Analysis One of the main components of accounting is the accurate analysis and reporting of data gathered. While the purpose of accounting is to provide information needed for businesses to make decisions, it is important to know the intended user, and the decisions which are being made. “Because of the diversity of users, their different levels of knowledge, the varying information needs for particular decisions, and the general nature of financial statements, a variety of analysis techniques has been developed” (Edmonds, Olds, McNair, & Tsay, 2010, Information Analysis). The main focus of analysis techniques, isolating specific information which is useful in making decisions, generally involves comparing individual item usage, businesses relationships, or operation methods within the same business type. In this paper, we will discuss the different methods of analysis, which are broken down into three specific categories: horizontal, vertical, and ratio. “Horizontal analysis, also called trend analysis, refers to studying the behavior of individual financial statement items over several accounting periods” (Edmonds, Olds, McNair, & Tsay, 2010, Horizontal Analysis). For the purpose of explaining all methods of analysis, I have prepared an example financial statement, as seen below (figures randomly generated). | | | | Northside Hospital | | | | | | | Statement of Profit and Loss for the Years Ended 12/31/01 through 12/31/02 | | | | | | | | December | | Change in | Change in | | | | | 2001 | | 2002 | Dollars | Percentage | | | | | | | | | | | Assets | | | | | | | | Current assets: | | | | | | | | | Cash and Cash equivalents | $1,649,112 | | $1,594,548 | $54,564 | 3.3% | | Short-term investments | | $1,476,384 | | $1,397,823 |
Carly Ayers
ACC 281 Accounting Concepts for Health Care Professionals
Professor Beverly Bulliner
January 21, 2013
Methods of Analysis One of the main components of accounting is the accurate analysis and reporting of data gathered. While the purpose of accounting is to provide information needed for businesses to make decisions, it is important to know the intended user, and the decisions which are being made. “Because of the diversity of users, their different levels of knowledge, the varying information needs for particular decisions, and the general nature of financial statements, a variety of analysis techniques has been developed” (Edmonds, Olds, McNair, & Tsay, 2010, Information Analysis). The main focus of analysis techniques, isolating specific information which is useful in making decisions, generally involves comparing individual item usage, businesses relationships, or operation methods within the same business type. In this paper, we will discuss the different methods of analysis, which are broken down into three specific categories: horizontal, vertical, and ratio. “Horizontal analysis, also called trend analysis, refers to studying the behavior of individual financial statement items over several accounting periods” (Edmonds, Olds, McNair, & Tsay, 2010, Horizontal Analysis). For the purpose of explaining all methods of analysis, I have prepared an example financial statement, as seen below (figures randomly generated). | | | | Northside Hospital | | | | | | | Statement of Profit and Loss for the Years Ended 12/31/01 through 12/31/02 | | | | | | | | December | | Change in | Change in | | | | | 2001 | | 2002 | Dollars | Percentage | | | | | | | | | | | Assets | | | | | | | | Current assets: | | | | | | | | | Cash and Cash equivalents | $1,649,112 | | $1,594,548 | $54,564 | 3.3% | | Short-term investments | | $1,476,384 | | $1,397,823 |