Final answer:
Creative accounting involves techniques like Income Smoothing, Big Bath Accounting, and Off-balance Sheet Financing to manipulate financial statements.
Step-by-step explanation:
Management may use a range of creative accounting techniques to manipulate financial statements. Three common techniques include:
- Income Smoothing: Spreading out profits and losses over a number of years to reduce the appearance of volatility in earnings.
- Big Bath Accounting: Taking all possible write-offs and provisions in one period, usually a bad year, to make future years look more profitable.
- Off-balance Sheet Financing: Keeping certain assets or liabilities off the company's balance sheet to improve financial ratios and misleading stakeholders about the company's financial health.
In the scenario of a young cashier accused of stealing, while not directly related to management or corporate accounting techniques, it serves as an example of being wrongly labeled. In the business context, firms might use the techniques mentioned to adjust financials for various reasons such as to meet targets, or influence stock price. Understanding these techniques is essential for analyzing financial statements critically.