3 -. What was the effect on the 1997 reported earnings of improperly charging (debiting) $22 million to the restructuring accrual account? What are some of the accounts that probably should have been debited instead? Flexibility, in accounting, allows to keep the good path of a business, but sometimes abuses, like earning managements, occur when this exibility is misused or overused. Companies tend to remain in good standings when assessing the efficiency and protability of their operations, however, problems appear when we nd large amount of charges. In our case, we want to address the issue when it is related to restructuring costs. This earnings management technique is called " Big Bath" charges (Levitt 1998). Companies are attracted to the use of Big Bath technique in order to show better earnings, and of course, a better good standing, financially speaking. Also, when companies are going through a restructuring process, managers, employees, and investors have to be clearly informed about what is going on in order to better understand the expected effect. Further, it must be reported in financial statements. Moonstay did took advantage of the allowed exibility, but did not accomplished with the rest of their responsibility which was to disclose the information in their reports. (Remarks from The Numbers Game, 1998). To answer the question, after the brief explanation of the concept, it can be inferred that the effect of improperly charging $22 million to restructuring accruals incurred in a substantial loss in 1996, which significantly overstated net income in 1997. Moonstay had originally charged $43.4 million in cash expenditures for 1997 to the restructuring accrual account recorded in 1996. After the review by two different CPA firms, it was found that only $21.2 million in cash expenditures was actually paid out in 1997. The additional $22 million that was recorded in the restructuring accrual account allowed for an improper evaluation