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Hi Sir,
Following is written in BPP book:
Window dressing in this context is usually manifested as an attempt to overstate the liquidity of the company by:
(a) Recording cheques paid in the period under the review which are not actually despatched after the year end, thus decreasing the balance at bank and reducing liabilities
(b) Keeping the cash book open to take credit for remittances actually received after the year end, thus enhancing the balance at bank and reducing receivables
Sir, I didnt quiet understand the meaning of the two statements a and b
Could you please explain it in simple words?
Thank you!
“Window dressing” is a general term for manipulations that “dress up” the SoFP I.e. make it look better than it actually is.
a) imagine that on the y/e date, say 31 Dec, an accountant writes out $100k worth of cheques….
Dr payables $100k
Cr cash $100k
Reducing current liabilities… which is a fabrication if the cheques aren’t sent immediately to the suppliers but withheld for days, weeks or even months after the y/e.b) imagine that on 1st, 2nd, 3rd of Jan you record receipts from customers as having been received on 31st Dec…
Dr cash
Cr receivables
I.e. inflating the cash balance.
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