Coming Soon
Subscription Marketplace - Buy and sell subscription products and services
861 views
in Articles by
Financial managers can do certain things to increase or decrease net income that's recorded in the year. This is called profit smoothing, income smoothing or just plain old window dressing. This isn't the same as fraud, or cooking the books.

Most profit smoothing involves pushing some amount of revenue and/or expenses into other years than they would normally be recorded. A common technique for profit smoothing is to delay normal maintenance and repairs. This is referred to as deferred maintenance. Many routine and recurring maintenance costs required for autos, trucks, machines, equipment and buildings can be delayed, or deferred until later.

A business that spends a significant amount of money for employee training and development may delay these programs until the next year so the expense in the current year is lower.

A company can cut back on its current year's outlays for market research and product development.

A business can ease up on its rules regarding when slow-paying customers are written off to expense as bad debts or uncollectible accounts receivable. The business can put off recording some of its bad debts expense until the next reporting year.

A fixed asset that is not being actively used may have very little current or future value to a business. Instead of writing off the un-depreciated cost of the impaired asset as a loss in the current year, the business might delay the write-off until the next year.

You can see how manipulating the timing of certain expenses can make an impact on net income. This isn't illegal although companies can go too far in massaging the numbers so that its financial statements are misleading. For the most part though, profit smoothing isn't much more than robbing Peter to pay Paul. Accountants refer to these as compensatory effects. The effects next year offset and cancel out the effects in the current year. Less expense this year is balanced by more expense the next year.

Please log in or register to reply to this topic.

Related topics

0 replies 658 views
posted in Articles by Knighthawk
0 replies 544 views
posted in Articles by UncleRhino
0 replies 584 views
posted in Articles by GardenParrot
0 replies 3,555 views
posted in Articles by Octopixy
0 replies 709 views
posted in Articles by Mosquiche
0 replies 1,016 views
posted in Articles by Sassassin
0 replies 633 views
posted in Articles by HairySeahorse
0 replies 1,026 views
posted in Articles by MagicalCyborg
0 replies 554 views
posted in Articles by Scorpeon
0 replies 581 views
posted in Articles by Octopuppy
0 replies 666 views
posted in Articles by Tabooccaneer
0 replies 624 views
posted in Articles by Knighttime
0 replies 552 views
posted in Articles by SilkPredator
0 replies 552 views
posted in Articles by nicejone
0 replies 592 views
posted in Articles by Finderpros
0 replies 557 views
posted in Articles by HairyFoal
0 replies 1,036 views
posted in Articles by HairyMagpie
0 replies 1,063 views
posted in Articles by ShowDolphin
0 replies 709 views
posted in Articles by GrizzlyFlash
0 replies 709 views
posted in Articles by VoyageHooper
0 replies 742 views
posted in Articles by BeautifulWolf
0 replies 1,015 views
posted in Articles by FrighteningTwinkles
0 replies 765 views
posted in Articles by Wallaby
0 replies 708 views
posted in Articles by Falconjurer
0 replies 677 views
posted in Articles by Emufasa
0 replies 717 views
posted in Articles by Celestiger
0 replies 732 views
posted in Articles by PositiveVoid
0 replies 666 views
posted in Articles by OpinionOwl
0 replies 748 views
posted in Articles by TrustyKitty
0 replies 716 views
posted in Articles by SleepyFledgling
0 replies 774 views
posted in Articles by GroundHurricane
0 replies 674 views
posted in Articles by SwiftHeroine
0 replies 680 views
posted in Articles by Sumogre
0 replies 942 views
posted in Articles by GamerAlpaca
0 replies 758 views
posted in Articles by MysteryWasp
0 replies 710 views
posted in Articles by BumblingBee
0 replies 610 views
posted in Articles by Herogue
0 replies 633 views
posted in Articles by Dingopher
0 replies 540 views
posted in Articles by Butcherry
0 replies 571 views
posted in Articles by PlaySeal
0 replies 551 views
posted in Articles by ForceSoldier
0 replies 706 views
posted in Articles by HarshThunder
Connect with us:
...