In order to overstate profit, a company may fraudulently:

Question

Quizplus · Accepted Answer

Capitalizing operating expenses and recognizing revenue before it is earned are both ways that a company can fraudulently overstate its profits. Capitalizing expenses means treating them as an asset rather than an expense, which allows the company to spread out the cost over multiple periods and makes expenses appear lower in the current period. Recognizing revenue before it is earned means including revenue that has not yet been received or realized, which can inflate the current period's profits. Both of these actions are unethical and in violation of generally accepted accounting principles.

In Order to Overstate Profit, a Company May Fraudulently