Creative Accounting Practices
Inevitable For Today's Business
Creative accounting is the practice of putting a company's best foot forward by creatively and legally recording accounting records in ways that offset negative records. Creativity has been practiced in accounting in order to give a new dimension to business. For those of you who had considered accounting is all about maintaining records, creativity is something that makes it more exciting.
Every business wants to portray consistent growth instead of depicting volatility in terms of profits. This is the main reason why creative accounting is being used as profit boosting tool in most of the business. By working the accounts in a legitimate method, the business could showcase a rosy picture although the story might not be as appealing as it is on the outside.
Winning investor's confidence
The main purpose of creative accounting is of course winning the confidence of the investors. This will ensure that the face value of the company is not lost even if it is going through a rough phase. The bad performance of the company is somehow balanced and overcome in the book of records with few creative entries. This small adjustment in the books can help the company to hide those temporary lows and thus ensure investors stay interested.
It is not all about wrong practice
This accounting process is not all about wrong practice but is a kind of intelligent adjustment in the book of accounts. It is about how to manage the balance sheet as well as profit & loss account in order to show maximum profit thus minimizing the impact of poor performance of the company for any given year.
Many times, the company may decide to push the huge profit from a particular year to the forthcoming years in order to maintain the consistency in performance. It is therefore the discretion about when to bring the profit or loss into the book of records that sustains the reputation of the company.
The secrets of creative accounting
The four secret methods used in this accounting method are
- Accounting method choice
- Biased prediction and estimates
- Modified transactions being entered
- Discrete entry of genuine transactions depending upon the performance of company
It is therefore wise to say that creative accounting is more of a compulsion for a company to stay in or march ahead of the competition rather than an optional choice. Its proper execution could ensure that the image of the company stays in tact even during the difficult times.
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