Financial Accounting For Dummies

Chapter 21

Ten Financial Accounting Shenanigans

In This Chapter

Inflating revenue and misclassifying income

Devaluing liabilities and inflating assets

Staying mum about related-party transactions

Capitalizing costs

Expensing costs

Financial statement shenanigans center around making a company’s financial statements look fantastic, even when they aren’t. The major areas of concern all artificially inflate the results of operations. The company may report higher net income than it should or manipulate its balance sheet figures, perhaps by underreporting liabilities or showing long-term assets as current. Why do companies mess around with their books and deviate from generally accepted accounting principles? Because they want to attract new investors or creditors by showing them great operating results. In this chapter, I reveal ten such manipulations.

Reporting Revenue in the Wrong Period

In financial accounting, income shenanigans usually result from reporting revenue early. The goal ...