When evaluating a seasonal business, which adjustment best facilitates cross-year comparability?

• A. Adjust revenue and expenses to off-season levels
• B. Increase depreciation expense to match revenue growth
• C. Ignore seasonality and compare only peak-season results
• D. Use only the most recent season's numbers

Answer: (A)

When comparing a seasonal business across different years, the goal is to remove the distortions caused by seasonal swings so you’re looking at the same level of activity. Adjusting revenue and expenses to off-season levels achieves that by normalizing both sides of the income statement to a common baseline. This makes year-to-year comparisons reflect genuine performance changes rather than just differences in peak versus off-peak demand.

Increasing depreciation to match revenue growth would misstate earnings, since depreciation is tied to asset cost and life, not seasonal activity. Ignoring seasonality and comparing only peak-season results would still carry seasonal distortions into the comparison. Using only the most recent season’s numbers ignores prior-years data and hinders understanding of trends.