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This paper discusses the motivations of income smoothing as well as some of the ways corporations engage in income smoothing. Specific companies that are explored include America Online Incorporated and their use of capitalizing expenses, Dell Incorporated and their use of cookie jar reserves, and Sunbeam Corporation and their use of channel stuffing as well as bill and hold sales. This paper argues that money and a desire to fit in are two of the root causes of income smoothing. Companies strive to meet Wall Street expectations and know that shareholders like to see consistent growth. The economy is typically pretty volatile and makes it difficult to have the exact same amount of growth each period. Individuals may be motivated to engage in income smoothing because of bonuses or other monetary incentives. Promotions may be performance based and may promote manipulation of numbers in order to move ahead. The desire to increase one’s wealth may be too much temptation for some people.
Pula, Mark, "Motivations and Methods of Income Smoothing" (2015). Honors Theses. 2538.