Question

"Cookie jar reserves" can best be described as:_______.A) Buying a lot of chocolate chip cookies, storing them for when you have a hunger attack, and then releasing them into your stomach B) Accelerating the recording of revenues into an earlier year than is warranted C) Overstating or understating allowances and reversing amounts in the future to smooth out net income over time D) Delaying the recording of expenses to a later year to boost income in the current year

Answer 1

Answer:

C) Overstating or understating allowances and reversing amounts in the future to smooth out net income over time.

Explanation:

Cookie jar reserve is defined as an accounting practice by businesses where the profit a company makes from successful years are reserved to cover up for years with losses. It balances losses from unsuccessful years.

Investors are led to believe that losses in bad years are less than they actually are.

For example not allocating an expense to a particular accounting year but instead allocating it to a year when the company made profits.

In essence it is overstating or understating allowances and reversing amounts in the future to smooth out net income over time.