Paying Off Debt

Financial managers can do certain things to increase or decrease net income that's recorded in the year. A common technique for profit smoothing is to delay normal maintenance and repairs. Many routine and recurring maintenance costs required for autos, trucks, machines, equipment and buildings can be delayed, or deferred until later. 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. You can see how manipulating the timing of certain expenses can make an impact on net income. This isn't illegal although firms can go too far in massaging the numbers so that its financial statements are misleading. 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.

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