tailieunhanh - Accounting For Dummies 4th Edition_11

Tham khảo tài liệu 'accounting for dummies 4th edition_11', tài chính - ngân hàng, kế toán - kiểm toán phục vụ nhu cầu học tập, nghiên cứu và làm việc hiệu quả | 260 Part IV Preparing and Using Financial Reports Chapter 7 explains that managers choose among alternative accounting methods for several important expenses and for revenue as well . After making these key choices the managers should let the accountants do their jobs and let the chips fall where they may. If bottom-line profit for the year turns out to be a little short of the forecast or target for the period so be it. This hands-off approach to profit accounting is the ideal way. However managers often use a hands-on approach they intercede one could say interfere and override the normal accounting for sales revenue or expenses. Both managers who do profit smoothing and investors who rely on financial statements in which profit smoothing has been done must understand one thing These techniques have robbing-Peter-to-pay-Paul effects. Accountants refer to these as compensatory effects. The effects next year offset and cancel out the effects this year. Less expense this year is counterbalanced by more expense next year. Sales revenue recorded this year means less sales revenue recorded next year. Of course the compensatory effects work the other way as well If a business depresses its current year s recorded profit its profit next year benefits. In short a certain amount of profit can be brought forward into the current year or delayed until the following year. Two profit histories Figure 12-2 shows side by side the annual profit histories of two different businesses over six years. Steady Flow Inc. shows a nice smooth upward trend of profit. Bumpy Ride Inc. in contrast shows a zigzag ride over the six years. Both businesses earned the same total profit for the six years in this case 1 050 449. Their total six-year profit performance is the same down to the last dollar. Which company would you be more willing to risk your money in I suspect that you d prefer Steady Flow Inc. because of the nice and steady upward slope of its profit history. I have a secret to share