Ebook Description :

Both analyses involve comparing income statement accounts to each other in dollars and in percentages understanding horizontal and vertical analysis is essential for managerial accounting because these types of analyses are useful to internal users of the financial statements such as company management as well as to external users. The vertical analysis of an income statement results in every income statement amount being restated as a percent of net sales example of vertical analysis of a balance sheet if a companys inventory is 100000 and its total assets are 400000 the inventory will be expressed as 25 100000 divided by 400000. The horizontal analysis considers all the amounts in financial statements over many years while vertical analysis takes into account the amounts present in the financial statements separately as a percentage of the total horizontal analysis just compares the trend of the item over many periods by comparing the change in amounts in the statement. The key difference between horizontal and vertical analysis is that horizontal analysis is a procedure in financial analysis in which the amounts in financial statements over a certain period of time is compared line by line in order to make related decisions whereas vertical analysis is the method of analysis of financial statements where each line item is listed as a percentage of another item