The possibility that an unusually heavy volume of sales returns after year-end could signal unauthorized shipments before year-end to inflate recorded sales and receivables.

Question

Quizplus · Accepted Answer

This scenario suggests that the company might have shipped products to customers without proper authorization or before the customers were ready to receive them, in an effort to record higher sales and receivables before the year-end. This practice can artificially inflate financial results, making the company appear more profitable or financially stable than it actually is. Sales returns after year-end could indicate that these transactions were not legitimate sales, hence signaling potential financial manipulation or fraud.

The Possibility That an Unusually Heavy Volume of Sales Returns