Deliberate and improper manipulation of the recording of sales revenue and/or expenses (with a purpose of making a company’s profit performance look better than it actually is) is qualified as accounting fraud.
These things and actions can be qualified as accounting/bookkeeping fraud:
- Not listing prepaid expenses or other incidental assets
- Collapsing short-term and long-term debt into one amount
- Not showing certain classifications of current assets and/or liabilities
Among one of the most common strategies of accounting fraud can be over-recording sales.
For example, a business ships products to customers that they haven’t ordered, this business knows that the customers will return the products after the end of the year. But until the returns are made – all business records shows great "actual sales."
Or another example, a business may do the channel stuffing. It delivers products to dealers and/or final customers that they really don’t want, however the business makes deals on the side that provide incentives and special privileges.
One more example is to delay the recording of products that have been returned by customers.
Another strategy is to under-record expenses. For instance, a business may choose not to record all of its cost of goods sold expense - this makes the gross margin look higher, but the business’s inventory asset would include products that actually are not in inventory because they’ve been delivered to customers.
Or a business might choose not to record asset losses that should be recognized (that can be, for example, uncollectible accounts receivable). Or a business might not record the full amount of the liability for an expense – surely the profit calculated in this case is overstated.
Follow the exact rules and sleep without fears to be messed up with accounting fraud.
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