Many observers believe that firms 'manage' their Income Statements to ________.

Question

Quizplus · Accepted Answer

Managing Income Statements to smooth earnings over time is a common tactic used by firms to avoid drastic fluctuations in profits. This helps to present a more stable financial picture to investors and stakeholders, which can boost confidence in the company and lead to greater investment. By manipulating various line items on the Income Statement, such as expenses and revenue recognition, firms can make their earnings appear more consistent and predictable. While minimizing taxes and generating level sales may also be goals of income statement management, these objectives are typically secondary to the goal of smoothing earnings. Maximizing expenditures is not typically a goal of income statement management, as this would lead to lower profits and a weaker financial position overall.

Many Observers Believe That Firms 'Manage' Their Income Statements to ________