What Does Financial Window Dressing Mean? by Chris Gilmour

In many instances, financial managers of a firm might do various things to increase or decrease the net income that is documented in the year. This practise is referred to as profit smoothing, income smoothing or to some as just window dressing. It is important to note that this isn't the same as fraud.

A lot of the profit smoothing will involve pushing an amount of income or expense into another year other than the year that they would normally be record it in. A popular method of profit smoothing can be a postponement in normal maintenance or repair, known as Deferred Maintenance. Lots of routine and regular maintenance expenditures involved in cars, trucks, as well as equipment and buildings might be delayed, or postponed until the next financial year. For a business that might expend a large amount of money with worker's training and development might want to delay commencing these programs in anticipation of the next financial year so the current expense in the current year will be lower. A company might also reduce on its existing year's outlays for exploration and product design and development.

By following these financially legal practises a business is able to consider its regulations about a customer's debt being written off to reduce the company's bad debt or record of uncollectible accounts receivable. A business might also delay documenting a portion of its bad debt until the following financial year. In addition, a business could have a fixed asset which might not be used might have a very small existing or potential worth to a business. So rather than writing off the un-depreciated expenditure of the respective asset as a loss during the current financial year, the business could consider delaying the write-off to be included in the next financial year.

From having the ability of manipulating times when various costs can be recorded can make a large impact on the net income and value of a company or business. It is important to note that this practise is not illegal but companies have been known to sometimes go too far when massaging the figures ultimately making their financial statements ambiguous and inaccurate. Some people refer to this type of method as one person to pay another. A lot of accountants don't always employ these methods as they will affect next year's figures. It can be noted that the effects in the following financial year can offset and might cancel the effects in the existing year. By recording less expense in the current year will have to be balanced with additional costs during the next financial year.

About the Author

Chris has several home business websites that promote valid working from home opportunities. He writes articles about finance, the ways to spot a home work scam, treating head louse and nits by using a home remedy for head lice and Italian lifestyle and culture including the various ways to learn italian.