Question

What term is used to describe the practice of entering into transactions at year-end that temporarily improve key ratios?

Answer 1

The practice of entering into transactions at year end so as to temporarily improve key ratios is commonly known as window dressing.

In window dressing company carefully and deceitfully arrange a transaction so as to improve the appearance of it's financial statements so as to fulfill any of it's desired objective.

For instance say company has to take loan and it has to show a strong Cash balance as at the end of the year . It has a high amount of accounts payable due this year. Now what company may do is it may not honour their payment on the due date this year and will defer their payment for the next year so that their Cash balance this year will appear to be solid which may help them to get loan easily or to serve any other purpose, and then next year it will make payment to those suppliers.

So practice when company enters into a transaction at year end so as to improve their key ratios is called window dressing.