In order to overstate income, a company may fraudulently:

Question

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Capitalizing operating expenses means treating these expenses as an asset on the balance sheet rather than an expense on the income statement. This inflates the company's assets and understates its expenses, resulting in a higher reported income. Recognizing revenue before it is earned, also known as premature revenue recognition, involves recording revenue before the company has actually fulfilled its obligations to the customer. This overstates the company's revenue and results in a higher reported income. By doing both, a company can significantly overstate its income through fraudulent accounting practices.

In Order to Overstate Income, a Company May Fraudulently