Window Dressing of Books of Accounts
Year end is over and everybody is rushing to cook there books of accounts to make there books of accounts look attractive and to file the return of income as per there convenience that is how much income they wish to show in there books of accounts, how much cash balance they want to maintain in there books, not concerned with what is actual. Window dressing is carried out generally near year end. It is considered as unethical practice.
Common areas where window dressing of books of accounts is carried out:
- Fixed Assets
Examples of window dressing of books of accounts:
- Payment made to creditors but not recorded to maintain cash balance.
- Postponing payment to creditors.
- Record low bad debt expense to maintain current ratio.
- Higher income is shown to avail loans from bank.
- Closing stock is shown at higher value.
- Revaluation of fixed assets at higher side.
Reason for window dressing books of accounts :
- There is trend going on to show strong balance sheet to avail heavy loans from bank, this is one of the major reason to windowdress the books of accounts.
- To achieve sales target position.
- To reduce liability for taxation.
Books of Accounts
Disadvantages of window dressing of books of accounts:
- Window dressing of books of accounts leads to rigorous penalty and prosecution.
- Further as per the trend of availing loan of higher amount from banks by window dressing of books of accounts, it leads to fooling bankers and in short affecting the whole banking system.
Persons who are misleaded by window dressing of books of accounts:
- Shareholders in case of company
It is advisable to show clean books of accounts rather than window dressed one, as the benefit of window dressing is temporary which may lead to long term penalties and prosecution.
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