Business Analysis with QuickBooks®

Chapter 4. Comparative Balance Sheets and Profit & Loss Statements

IN THIS CHAPTER

• Reasons for Comparative Analysis

• Using QuickBooks to Create Comparative Financial Statements

• Combining Vertical and Horizontal Analyses

• Making Comparisons to Other Companies

Chapter 1 touches briefly on the reasons you might want to use QuickBooks to prepare financial statements such as comparative balance sheets and comparative income statements. That chapter also goes into detail on the mechanics of structuring that kind of statement in QuickBooks. This chapter goes into the rationale for comparative statements in more depth, and explains how that rationale helps you decide how to structure those statements.

Reasons for Comparative Analysis

In its simplest form, a comparative financial statement merely shows you two, or occasionally three, periods of financial data so you can compare across time periods the results of doing business. In theory, the periods could represent anything from days to decades, but in practice people usually look at years or quarters. Of course, both periods should be of the same duration, so you would compare Year 3 with Year 4, or Quarter 1 with Quarter 2.

If it's year-end and you want to compare last year's income statement with this year's, it seems that the thing to do is to use QuickBooks reports to print a couple of income statements. The dates would be January 1 through December 31 for each year. Then just look at them and see what's changed.

Suppose you do just that with ...