Final answer:
The accrual of expenses can be used to manage earnings by increasing reported expenses. This allows for a more accurate financial performance picture and can help lower tax liabilities.
Step-by-step explanation:
The accrual of expenses can be used to manage earnings by increasing reported expenses. Accrual accounting recognizes expenses when they are incurred, not when they are paid. This means that even if the cash payment for an expense has not been made, it can still be recorded as an expense on the financial statements.
By accruing expenses, a company can intentionally increase its reported expenses, which in turn decreases its earnings. This can be done to lower tax liabilities, comply with regulations, or simply to provide a more accurate picture of the company's financial performance.
It is important to note that accrual of expenses does not solely rely on cash transactions. It allows a company to reflect the economic impact of expenses, regardless of whether cash has been paid or not.