Question

Which of the following is a technique used to understate reported earnings by shifting them to a later period?

O delay recording liabilities until a later period
O record bogus revenue
O delay recording revenue in high earnings years
O accelerate recording revenue into low earnings years

Answer 1

The correct answer is to delay recording revenue in high earnings years, a technique known as income smoothing or earnings management to understate earnings.

Step-by-step explanation:

The technique used to understate reported earnings by shifting them to a later period is to delay recording revenue in high earnings years. This is a method known as income smoothing or earnings management, which involves the manipulation of financial records to present a more consistent but potentially misleading view of a company's financial health and performance. The other options mentioned either do not relate to understating earnings or involve unethical practices such as recording bogus revenue, which is different from managing the timing of revenue recognition.

The correct technique used to understate reported earnings by shifting them to a later period is to delay recording revenue in high earnings years. By delaying the recording of revenue, a company can postpone recognizing income and therefore understate reported earnings. This can be done by deferring the recognition of sales or by delaying the invoicing for services rendered.