What may be the effect on a company's financial statements in the year a company sets up a cookie jar reserve?

Question

Quizplus · Accepted Answer

Setting up a cookie jar reserve typically involves recognizing expenses earlier than necessary, which reduces net income in the period the reserve is established. This action increases liabilities, as the reserve is accounted for as a liability on the balance sheet, leading to net income being too low and total liabilities being too high in that period.

What May Be the Effect on a Company's Financial Statements