A higher than usual allowance for uncollectible accounts may indicate a company is manipulating earnings using a cookie jar reserve.

Question

Quizplus · Accepted Answer

A higher than usual allowance for uncollectible accounts may indicate a company is intentionally overestimating its bad debts expense, which reduces current earnings and creates a reserve that could be used in future periods to boost earnings. This practice is known as cookie jar accounting, and it is a form of earnings management that can be misleading to investors and stakeholders.

A Higher Than Usual Allowance for Uncollectible Accounts May Indicate