Q4RQ - Horngren'S Financial And Managerial Accounting

Question

Question: What is trend analysis, and how does it differ from horizontal analysis?

Step-by-Step Solution

Answer

Answer

 

Trend analysis is done by the companies to see the directions in which their business is going.

Both the analysis, i.e., trend and horizontal are almost similar.

 

Step 1: Meaning of Trend Analysis

Trend analysis is a method or technique that helps the business to understand the direction of the business entity by comparing it with the historical trends. For example, how the sales changed over the past six years?

Step 2: Difference between Trend and Horizontal Analysis

A company can use both these trend analysis and horizontal analysis to analyze the different things of the company as both these two analyses are almost similar.

 

Horizontal analysis helps to analyze and compare the items of the financial statements of the current year with the previous years by calculating the percent change.

 

On the other hand, trend analysis shows the trend of a particular item that it is an upward or a downward trend in the net sales of the business for a longer period.