To counter higher than expected earnings, companies may deliberately overstate bad debt expense and reserves for obsolete inventory.

Name: To counter higher than expected earnings, companies may deliberately overstate bad debt expense and reserves for obsolete inventory.
Brand: Quizplus
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Question

Quizplus · Accepted Answer

By intentionally overestimating bad debt expense and reserves for obsolete inventory, a company can decrease its reported earnings and create a cushion for future periods. This practice is often referred to as "big bath accounting."

To Counter Higher Than Expected Earnings, Companies May Deliberately Overstate