Question
What is 'Window Dressing'? Explain with the help of an example.
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Answer
Window dressing is a technique used by companies and financial managers to manipulate financial statements and reports to show more favorable results for a period. Although window dressing is illegal or fraudulent, it is slightly dishonest and is usually done to mislead investors.Example of Window Dressing:
Let's assume that a company operates throughout the year with a negative balance in its general ledger account Cash, Checking Account. (At the bank, the checking account has a positive balance due to the time it takes for the company's checks to clear.) In order to avoid its December 31 balance sheet reporting a negative cash balance, the company decides to postpone issuing checks for vendors' invoices that should have been paid. The postponement allows its general ledger Cash account to temporarily have a positive amount. On January 2, the company will issue the postponed checks and will resume its normal practice of having a negative balance in its Cash account.
Let's assume that a company operates throughout the year with a negative balance in its general ledger account Cash, Checking Account. (At the bank, the checking account has a positive balance due to the time it takes for the company's checks to clear.) In order to avoid its December 31 balance sheet reporting a negative cash balance, the company decides to postpone issuing checks for vendors' invoices that should have been paid. The postponement allows its general ledger Cash account to temporarily have a positive amount. On January 2, the company will issue the postponed checks and will resume its normal practice of having a negative balance in its Cash account.
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|
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₹
|
|
On application
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30
|
|
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|
|
On first call
|
20
|
|
On final call
|
30
|
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