Common-size financial statements present all balance sheet account values as a percentage of:

• A. Total liabilities
• B. Total assets
• C. Total revenues
• D. Net income

Answer: (B)

Verified step by step guidance

1. Understand the concept of common-size financial statements: These are financial statements where each line item is expressed as a percentage of a common base figure, making it easier to compare across companies or periods.
2. Identify the type of financial statement in question: In this case, the problem refers to the balance sheet, which lists assets, liabilities, and equity.
3. Determine the base figure for the balance sheet: Common-size balance sheets express all account values as a percentage of total assets. This is because total assets represent the sum of all resources controlled by the company, making it the logical base for comparison.
4. Clarify why total assets are used: Total assets provide a comprehensive view of the company's financial position, and expressing other items as a percentage of total assets allows for proportional analysis of liabilities and equity relative to the company's resources.
5. Review the incorrect options: Total liabilities, total revenues, and net income are not used as the base for common-size balance sheets. Total liabilities are part of the balance sheet but not the base figure, while total revenues and net income are relevant to the income statement, not the balance sheet.