Accounting, Payroll & Pension Issues/Failing to record the recovery of written-off accounts in a timely manner?
I was talking to a friend the other day about work. She's a new accountant, just out of school this past summer. She was telling me about how in December, her boss had her hold a check that was written to pay off the written-off account of a past client who was in debt to the company and then, instead, record it for the new accounting period after January 1st.
While i am not an accountant, i told her that i was fairly sure that this was, at the very least, ethically wrong, if not illegal, as it would be considered defrauding the government by reporting a lesser amount of revenue than was actually earned. She didn't believe me or didn't understand what i was trying to explain. I couldn't provide a better explanation though, as i don't know all of the ins and out of accounting.
I was wondering if you could explain the affects of holding this check? Such as on the business's financial statements for last year and the consequences it could have on the business otherwise? I would like to show her so that she's aware. I know doing it is wrong, but i can't explain why to her in detail.
A check received is income in the year received. In the situation described, by holding the check, the company is delaying the income received until the following year. Note that the income is the same, just the timing is changed by holding onto the check.
If the amount of the check is small relative to the company's financials, the error is likely to be ignored by the IRS.
If additional information is needed, please let me know with a follow-up.