The statement “common size income statements show balance sheet items as a percentage of current assets” is false.

Quick Scoop

What common-size income statements actually do

A common-size income statement shows income statement items (like sales, cost of goods sold, expenses, and net income) as a percentage of total revenue or net sales, not as a percentage of current assets.

This helps you compare profitability and cost structure across time or between companies of different sizes.

Typical base for common-size income statements:

  • Net sales or total revenue = 100%.
  • Every other line (COGS, operating expenses, interest, taxes, net income) is shown as a percentage of that 100%.

Example:
If revenue is 100 and net income is 10, then net income is 10% of revenue on a common-size income statement.

Where “percentage of total assets” belongs

The “percentage of assets” idea applies to the common-size balance sheet , not the income statement.

On a common-size balance sheet:

  • Total assets are set to 100%.
  • Each asset, liability, and equity item is shown as a percentage of total assets.

So:

  • Cash, inventory, PPE, etc. → percentage of total assets.
  • Current liabilities, long‑term debt, equity → also as a percentage of total assets.

Current assets themselves may appear as, say, 60–80% of total assets, but they are not the base; total assets are.

Why the test statement is wrong

The incorrect statement mixes three things:

  1. Income statement vs. balance sheet
    • Common-size income statement → percentage of revenue.
 * Common-size _balance sheet_ → percentage of total assets.
  1. Balance sheet items vs. income statement items
    • Balance sheet items (assets, liabilities, equity) do not appear on the income statement.
  1. Current assets vs. total assets
    • The standard base for a common-size balance sheet is total assets, not current assets.

Because of this, a typical multiple‑choice/True–False question with that exact wording is meant to be answered “False.”

Simple way to remember

  • Income statement → percent of sales.
  • Balance sheet → percent of total assets.

If you see “income statement” and “balance sheet items as a percentage of current assets” in the same sentence, it’s almost certainly a trick question and the correct response is False.

Information gathered from public forums or data available on the internet and portrayed here.