Tugas Resume Chapter 2 Dan Chapter 3
Tugas Resume Chapter 2 Dan Chapter 3
Tugas Resume Chapter 2 Dan Chapter 3
In this resume will explore techniques used by companies to overstate earning and
present some warning signs that may alert you to potential problems. In some cases, companies
will play games that do not overstate bottom-line earnings (net income) but overstate revenues or
some subtotal earnings such as gross margin or operating margin. What motivates a company to
overstate earnings? Because both investors and creditors are interested in the level of profits of a
company. The higher the earnings or profit, the more can be returned to investors and creditors
or invested for the future. If management want to make themselves look better to creditors or
investors, they may be motivated to play accounting games to make earnings appear better than
they actually are, especially if managers compensation is linked to earnings or share price. That
income statement game are aggressive revenue recognition, deferral of expenses, classification
of non-operating income or non-recurring income as revenue and Classification of operating
expenses as non-operating or special.
Aggressive revenue recognition is where company overstates revenues and earnings by reporting
revenue on the income statement earlier than the economics of the transaction or in some cases in
the absence of a true transaction-for example, fraudulent reporting of revenue. Generally,
revenue is recognized when the company has delivered goods or services to its customers, which
could be before or after cash is received. As a results, there is a timing difference between the
time when sales transactions are reflected on the income statement and the cash flow statement.
Some companies are more aggressive than others when they report revenues on the income
statement.