10 Accounting Tricks That Work Every Time

Below are the ten accounting tricks that might help your business

1. The Shell Game

One of the oldest and most well-known accounting tricks is the shell game. This involves creating two or more companies that appear to be separate and distinct entities but are controlled by the same people. This can be done by setting up holding companies, subsidiaries, or special purpose entities.

The beauty of the shell game is that it allows businesses to move money around between these different entities in a way that is not transparent to outsiders. This can be used to inflate income, hidden expenses, or avoid taxes.

2. The Double Dip

The double-dip is another classic accounting trick that can be used to inflate income. It works by recording revenue twice for the same transaction.

For example, let’s say a company sells a product for $100. The double dip would involve recording the $100 as revenue when the product is sold, and then again when the product is delivered. This can be done by using different accounting methods or by simply fudging the numbers.

3. The Cookie Jar Reserve

The cookie jar reserve is an accounting trick that involves setting aside money in good years to offset losses in bad years. This allows companies to smooth out their earnings and make them look more consistent over time.

To do this, companies will book phony expenses in good years so they can offset real losses in bad years. This can be done by inflating inventory levels, exaggerating depreciation expenses, or booking bogus reorganization charges.

4. The Big Bath

The big bath is an accounting trick that involves taking a one-time charge to earnings to make future results look better. This can be done by writing off bad debts, taking inventory write-downs, or recording restructuring charges.

The goal of the big bath is to make future earnings look better in comparison. This can be used to artificially boost the stock price or meet analysts’ estimates.

5. The Leonardo da Vinci Gambit

The Leonardo da Vinci gambit is an accounting trick that involves incorrectly assuming that something will happen in the future when there’s no reason to believe that it will. For example, a company might assume that a new product will be a success and start booking revenue from it even though it hasn’t even been released yet.

This is a risky move because it can backfire if the product fails to live up to expectations. But if it does work out, it can be used to inflate income and make the company look more successful than it is.

6. The Enron Loophole

The Enron loophole is an accounting trick that allows companies to hide debt off their balance sheets. This was famously used by the energy giant Enron to disguise its true financial condition.

To do this, companies set up special purpose entities that are technically separate from the company itself. They then use these entities to borrow money or enter into contracts. This allows the company to keep the debt off its balance sheet and makes it look healthier than it is.

7. The Accrual Swap

The accrual swap is an accounting trick that involves swapping one type of expense for another. For example, a company might swap out advertising expenses for research and development expenses.

This can be used to artificially boost income in the short term or to smooth out earnings over time. It can also be used to change the way a company is taxed.

8. The Revenue Recognition Gambit

The revenue recognition gambit is an accounting trick that involves booking revenue before it’s earned. This can be done by using different accounting methods or by simply fudging the numbers.

This can be a risky move because it can backfire if the revenue doesn’t materialize. But if it does work out, it can be used to inflate income and make the company look more successful than it is.

9. The Balance Sheet Shell Game

The balance sheet shell game is an accounting trick that involves moving assets and liabilities around on the balance sheet. This can be done to inflate income, hide expenses, or avoid taxes.

For example, a company might move inventory from one subsidiary to another to get a tax deduction. Or it might shift debt from one entity to another to make its financial condition look better.

10. The Deferral of Expenses

The deferral of expenses is an accounting trick that involves postponing the recognition of expenses. This can be done by using different accounting methods or by simply fudging the numbers.

This can be used to artificially boost income in the short term or to smooth out earnings over time. It can also be used to change the way a company is taxed.

These are just some of the most common accounting tricks that companies use to artificially boost their income. While there are many more, these 10 should give you a good idea of the types of things that can be done. If you are interested, click on Dandenong accountants

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