Understanding Accounting – Accounting Frauds

 

Accounting fraud is a deliberate and improper handling of sales revenues and / or expenses to make the company’s profit performance look better. Some of the things that companies that can be scammed are:

– Do not list prepaid expenses or other incidental assets
– Certain classifications of current assets and / or liabilities do not appear
– Combining short and long term debt into one.

Excessive recording of sales revenue is the most common technique of account fraud. A business can ship products that are not ordered by customers, and those customers know they will return the product at the end of the year. Business returns shipments as actual sales until the return. Or a business could be channel filling. It provides products to sellers or end-customers who don’t really need them, but does business with incentives and special perks, if vendors or customers are not opposed to buying immature products. A business may delay recording a product returned by a customer for not recognizing this offset relative to current year sales.

Another way that a business makes an accounting scam is to keep costs low, such as not reporting depreciation expense. Or a business may choose not to report all costs of goods sold before it is sold for a period of time. This will raise the gross margin, but the business inventory asset will be included because the products are actually delivered to customers without inventory.

A business may choose not to report identifiable asset losses, such as accounts receivable, or write inventory under cost or market rules. A business may not write down its full liability for expenses, which reduces its liability on the company’s balance sheet. Therefore, its profits will exceed.