Effects of Accounting Practices on Net Income

Hi,

I often read that it is important to understand how certain accounting practices/changes affect net income. I am aware that accounting is a very complicated topic, however, are there specific things to watch out for that are usually used to sugarcoat or run down income?

Best,
Hanso6

 

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Hope that helps.

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Most Helpful

Hi Hans,

A few thoughts here:

  1. Watch out for different revenue recognition policies.
  2. Inventory methods can skew income higher/lower depending on an inflationary/deflationary environment.
  3. Uncertain tax positions can be easily manipulated to increase/decrease net income.
  4. Look out for fluffy seeming reserve balances that management can more easily judgementally fluctuate if needed.

Hope that helps.

 

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