Accountancy Part BAnalysis of Financial Statements

Window dressing is a practice:

Answer & explanation

Correct answer: option 1

The correct answer is Option (1) → To manipulate the accounts to show a better picture of the financial position than the actual one

Window dressing means presenting the financial statements so that the business looks stronger than it is, for example by timing transactions near the year end to improve the current ratio. Analysts treat it as a limitation of financial analysis, because the figures may not show the real position.

NCERT (2026-27 edition):
Limitations of Financial Analysis – “Though financial analysis is quite helpful in determining financial strengths and weaknesses of a firm, it is based on the information available in financial statements. As such, the financial analysis also suffers from various limitations of financial statements. Hence, the analyst must be conscious of the impact of price level changes, window dressing of financial statements, changes in accounting policies of a firm, accounting concepts and conventions, personal judgement, etc.”