Accounting For Dummies®, 4th Edition

12.5. Putting a Spin on the Numbers (But Not Cooking the Books)

This section discusses two accounting tricks that involve manipulating, or "massaging," the accounting numbers. I don't endorse either technique, but you should be aware of both. In some situations, the financial statement numbers don't come out exactly the way the business wants. With the connivance of top management, accountants can use certain tricks of the trade — some would say sleight of hand, or shenanigans — to move the numbers closer to what the business prefers. One trick improves the appearance of the short-term solvency of the business and the cash balance reported in the balance sheet at the end of the year. The other device shifts some profit from one year to the next to report a smoother trend of net income from year to year.

I don't mean to suggest that all businesses engage in these accounting machinations — but many do. The extent of use of these unholy schemes is hard to pin down because no business would openly admit to using them. The evidence is fairly convincing, however, that many businesses massage their numbers to some degree. I'm sure you've heard the term loopholes applied to income tax. Well, some loopholes exist in financial statement accounting as well.

12.5.1. Window dressing for fluffing up the cash balance

Suppose you manage a business and your controller has just submitted for your ...