A common method used to smooth net income over time is:
A) Accelerate revenue into earlier periods
B) Delay expenses into later periods
C) Using accrual of operating expenses and future adjustments
D) Using nonrecurring items to increase earnings in one year and reduce it later on

Question

Quizplus · Accepted Answer

Using accrual of operating expenses and future adjustments is the most appropriate way to smooth net income over time. This method involves recognizing and recording expenses as they occur, even if payment hasn't been made, and adjusting for future expenses or income that will likely occur. This method ensures that expenses and income are recognized in the appropriate period and can help to avoid significant fluctuations in net income from year to year. Options A and B involve manipulating revenue and expenses, which can be unethical and may not reflect the company's true financial position. Option D involves using nonrecurring items to manipulate earnings, which is not a sustainable way to manage net income over time.

A Common Method Used to Smooth Net Income Over Time