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.
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.
A company can cut back on its current year's outlays for market research and product development.
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.
You can see how manipulating the timing of certain expenses can make an impact on net income. The effects next year cancel and offset out the effects in the current year. Less expense this year is balanced by more expense the next year.
Most profit smoothing involves pushing some amount of revenue and/or expenses into other years than they would normally be recorded. The effects next year cancel and offset out the effects in the current year. Less expense this year is balanced by more expense the next year.
When slow-paying customers are written off to expense as uncollectible accounts or bad debts receivable, a business can ease up on its rules regarding. The business can put off recording some of its bad debts expense until the next reporting year.
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.
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