Adjustments for Financial Reporting

It is sometimes more informative to express all the dollar amounts as a percentage of one of the amounts in the base year rather than to look only at the dollar amount of the item in the financial statements. You can calculate trend percentages by dividing the amount for each year for an item, such as net income or net sales, by the amount of that item for the base year:

$\text { Trend percentage }=\frac{\text { Current year amount }}{\text { Base year amount }}$

To illustrate, assume that ShopaLot, a large retailer, and its subsidiaries reported the following net income for the years ended 2001 January 31, through 2010. The last column expresses these dollar amounts as a percentage of the 2001 amount. For instance, we would calculate the 125 per cent for 2002 as:

[(USD 1,609,000/USD 1,291,000)5 100]

Examining the trend percentages, we can see that ShopaLot's s net income has increased steadily over the 10-year period. The 2010 net income is over 4 times as much as the 2001 amount. This is the kind of performance that management and stockholders seek, but do not always get.

In the first three chapters of this text, you have learned most of the steps of the accounting process. Chapter 4 shows the final steps in the accounting cycle.