Financial Window Dressing?

Financial managers can do things to increase or decrease net income for the year. This is called smoothing earnings, profit, or simply smoothing window dressings. This is not the same as fraud or books.

Most profit smoothing involves pressing a certain level of income and / or expenses over the years that are normally recorded. A common technique for profit smoothing is to delay the ongoing maintenance and repairs. This is called deferred maintenance. Most of the costs for routine and periodic maintenance requirements for cars, trucks, machinery, equipment and buildings can be delayed or postponed until later.

A company that spends a large sum of money for the training and development of these programs can be until next year, so the cost may be delayed in the current year is lower.

A company can reduce its costs this year for market research and product development.

An entity may be relieved if the rules are cleared through the slow-paying customers by spending as bad or uncollectible debts. The company can store incorporating some of its bad loans until the next report.

An asset that is not actively used, can have a present value or future for a small business. Instead of typing in the costs of non-depreciated assets hit by a loss in the current year, may delay the termination of the company by next year.

You can see how the manipulation of data for some costs have an impact on net income may have. It is not illegal, although companies can massage the numbers go too far, so that their statements misleading. For most, however, profit smoothing is not much more than robbing Peter to pay Paul. Accountants related to these effects as compensation. The effects of compensation in the next year and releasing the progress achieved in the year. Less expenditure this year is moved by an increase in spending for next year.