Correction
A year-end balance may poorly represent resources held throughout a year. When comparing a period's activity with resources used during that period, consider whether an average balance better fits the question.
Choose observations that fit the business
The beginning-and-ending average uses more information than the ending balance alone. It can still miss seasonal increases between those dates. More frequent observations may better represent the resources held during the period.
An average of selected observations is not necessarily the exact daily average. State the approximation when it affects interpretation. For a comparison of current assets and current liabilities at the same date, use those date-specific balances; averaging is not automatically appropriate.
Where to watch
When this mistake may appear
- An item supplies beginning and ending balances alongside annual sales or income.
- A database provides only the most recent balance-sheet value.
Check your work
Your work may contain this mistake if:
- Uses ending assets or equity without discussing the period represented.
- Averages nonadjacent, differently scoped, or differently scaled observations.
- Calls a two-point average exact even after a large late-period transaction.