Overstating sales returns or warranty costs in good times and using these overstatements in bad times to reduce similar charges, is the definition of which of the following earnings management techniques?
A)Taking a bath
B) Creative acquisition accounting
C) Creasing "cookie jar" reserves
D) Abusing the materiality concept

Question

Overstating sales returns or warranty costs in good times and using these overstatements in bad times to reduce similar charges, is the definition of which of the following earnings management techniques? 
A)Taking a bath
B) Creative acquisition accounting
C) Creasing "cookie jar" reserves
D) Abusing the materiality concept

Quizplus · Accepted Answer

Creasing "cookie jar" reserves refers to the practice of companies deliberately setting aside large reserves in good financial periods that they can dip into during tougher times, in order to smooth out earnings. This technique involves overstating certain expenses or losses, such as sales returns or warranty costs, when the company is performing well financially. Then, in periods of lower performance, the company uses these overestimated reserves to offset actual expenses, thereby managing earnings to appear more stable over time.

Overstating Sales Returns or Warranty Costs in Good Times and Using