Business People Club

What is accounting fraud?

0 like 0 dislike
239 views
in Articles - Octopuppy
Accounting fraud is a deliberate and improper manipulation of the recording of sales revenue and/or expenses in order to make a company's profit performance appear better than it actually is. Some things that companies do that can constitute fraud are:

--Not listing prepaid expenses or other incidental assets
--Not showing certain classifications of current assets and/or liabilities
--Collapsing short- and long-term debt into one amount.

Over-recording sales revenue is the most common technique of accounting fraud. A business may ship products to customers that they haven't ordered, knowing that those customers will return the products after the end of the year. Until the returns are made, the business records the shipments as if they were actual sales. Or a business may engage in channel stuffing. It delivers products to dealers or final customers that they really don't want, but business makes deals on the side that provide incentives and special privileges if the dealers or customers don't object to taking premature delivery of the products. A business may also delay recording products that have been returned by customers to avoid recognizing these offsets against sales revenue in the current year

The other way a business commits accounting fraud is by under-recording expenses, such as not recording depreciation expense.  Or a business may choose not to record all of its cost of goods sold expense fore the sales made during a period. This would make the gross margin higher, but the business's inventory asset would include products that actually are not in inventory because they've been delivered to customers.

A business might also choose not to record asset losses that should be recognized, such as uncollectible accounts receivable, or it might not write down inventory under the lower of cost or market rule. A business might also not record the full amount of the liability for an expense, making that liability understated in the company's balance sheet. Its profit, therefore, would be overstated.

Please log in or register to reply to this post.

Related posts

0 like 0 dislike
0 comments 1,247 views
0 like 0 dislike
0 comments 290 views
0 like 0 dislike
0 comments 245 views
0 like 0 dislike
0 comments 338 views
0 like 0 dislike
0 comments 317 views
0 like 0 dislike
0 comments 319 views
0 like 0 dislike
0 comments 254 views
0 like 0 dislike
0 comments 266 views
0 like 0 dislike
0 comments 220 views
0 like 0 dislike
0 comments 261 views
0 like 0 dislike
0 comments 250 views
0 like 0 dislike
0 comments 271 views
0 like 0 dislike
0 comments 236 views
0 like 0 dislike
0 comments 255 views
0 like 0 dislike
0 comments 281 views
0 like 0 dislike
0 comments 208 views
0 like 0 dislike
0 comments 296 views
0 like 0 dislike
0 comments 246 views
0 like 0 dislike
0 comments 285 views
0 like 0 dislike
0 comments 265 views
0 like 0 dislike
0 comments 252 views
0 like 0 dislike
0 comments 303 views
0 like 0 dislike
0 comments 243 views
0 like 0 dislike
0 comments 249 views
0 like 0 dislike
0 comments 244 views
0 like 0 dislike
0 comments 200 views
0 like 0 dislike
0 comments 270 views
0 like 0 dislike
0 comments 250 views
0 like 0 dislike
0 comments 217 views
0 like 0 dislike
0 comments 212 views
0 like 0 dislike
0 comments 234 views
0 like 0 dislike
0 comments 298 views
0 like 0 dislike
0 comments 306 views
0 like 0 dislike
0 comments 333 views
Connect with us:
...