Larry’s Laws of Larceny- Law 9: The Executive Chef Isn’t Into Cooking the BooksBondBeebe
Larry Beebe, CPA
What does “cooking the books” mean?
Investopedia defines “cook the books” as “a buzzword performed by corporations in order to falsify their financial statements.” Examples include accelerating revenues and delaying expenses. A pension fund could make its year look better by holding open cash receipts until after year end to record receipts as income that should be recorded in the following year.
I once audited a business that showed a high cash balance at their December 31 year end. I congratulated them on their extraordinary collection efforts in December. They admitted that they simply booked all cash receipts through January 25 as if they have been received in December.
How can cooking the books be caught? A good auditor will examine significant cash transactions and journal entries at year end to insure that transactions are recorded in the proper accounting periods.