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Is My Boss Requesting Unethical Accounting Practices?

Hello everyone!

I’ve been working as a bookkeeper for a small business for about 15 months. Recently, my boss made a request that has left me unsure whether it’s a standard procedure or if it crosses into unethical territory.

Our company deals in flooring, and our usual process involves collecting a 50% deposit at the time of order. We then invoice the sales order and collect the remaining balance when the product is picked up. We use QuickBooks Desktop for managing these transactions, and deposits are recorded as credits. These credits are deposited into our account and later applied to the invoice once the product is collected.

However, yesterday my boss asked me to change our usual procedure. He instructed me not to mark products as picked up or to invoice sales orders until the end of the year. Instead, he wants all payments received to be applied as deposits and for invoices to be created, and credits applied after January 1st. He mentioned that this is an annual practice, but I don’t recall doing this in the previous year.

Could this be considered a way to deflate our 2024 income, or is there something I’m not understanding? I reside in the USA, specifically in Illinois. Is this a common practice that I might not be aware of?
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It’s great that you’re approaching this situation with caution and seeking advice. The scenario you’re describing does raise some red flags, particularly in terms of Accounting ethics and financial reporting. Let’s break it down:

Understanding the Process

Current Practice:
Deposit Collection: You collect a 50% deposit when the order is placed.
Invoicing: You invoice the sales order and collect the balance when the product is picked up.
Deposit Entry: The deposits are entered as credits in your Accounting Software and applied to the invoice when the product is picked up.
Proposed Change:
Delayed Invoicing: Your boss is asking you to delay marking the product as picked up and delay invoicing the sales orders until after January 1st.
Deposit Treatment: All payments would still be applied as deposits initially, with invoices and corresponding credits being applied in the new year.

Potential Ethical and Legal Concerns

Revenue Recognition: Delaying invoicing and recognition of the sale can impact financial statements. Generally Accepted Accounting Principles (GAAP) in the U.S. dictate that revenue should be recognized when it’s earned and realizable. If the goods were picked up and the sale was essentially completed in 2023, deliberately deferring recognition to 2024 might not comply with GAAP.
Tax Implications: By shifting income from one tax year to the next, this practice might be intended to manipulate earnings or tax liabilities artificially. This could potentially be viewed as tax evasion by the IRS if the intent is to alter the business’s taxable income.
Consistency and Comparability: If this practice was not followed last year, it raises questions about the consistency in financial reporting, which is crucial for accurate comparison across financial periods.

Is It Normal Practice?

While some businesses might have legitimate reasons for timing revenue recognition (such as long-term contracts affecting when work is considered “complete”), arbitrary deferrals that lack a business justification can be seen as unethical or even illegal.

Recommendations

Seek Clarification: Politely request your boss to explain why this practice is being proposed and how they believe it aligns with accounting standards.
Consult the Accounting Standards: Review relevant sections of GAAP or consult with an accountant who can provide guidance specific to your industry and local regulations.
Consider Legal Advice: If you’re still uncertain, it might be wise to seek legal advice from

One response

APAdmin

26 February 2025 at 2:00 PM
It’s great that you’re approaching this situation with caution and seeking advice. The scenario you’re describing does raise some red flags, particularly in terms of Accounting ethics and financial reporting. Let’s break it down:

Understanding the Process
1. Current Practice:
2. Deposit Collection: You collect a 50% deposit when the order is placed.
3. Invoicing: You invoice the sales order and collect the balance when the product is picked up.
4. Deposit Entry: The deposits are entered as credits in your Accounting Software and applied to the invoice when the product is picked up.
5. Proposed Change:
6. Delayed Invoicing: Your boss is asking you to delay marking the product as picked up and delay invoicing the sales orders until after January 1st.
7. Deposit Treatment: All payments would still be applied as deposits initially, with invoices and corresponding credits being applied in the new year.
Potential Ethical and Legal Concerns
- Revenue Recognition: Delaying invoicing and recognition of the sale can impact financial statements. Generally Accepted Accounting Principles (GAAP) in the U.S. dictate that revenue should be recognized when it’s earned and realizable. If the goods were picked up and the sale was essentially completed in 2023, deliberately deferring recognition to 2024 might not comply with GAAP.
- Tax Implications: By shifting income from one tax year to the next, this practice might be intended to manipulate earnings or tax liabilities artificially. This could potentially be viewed as tax evasion by the IRS if the intent is to alter the business’s taxable income.
- Consistency and Comparability: If this practice was not followed last year, it raises questions about the consistency in financial reporting, which is crucial for accurate comparison across financial periods.
Is It Normal Practice?
- While some businesses might have legitimate reasons for timing revenue recognition (such as long-term contracts affecting when work is considered “complete”), arbitrary deferrals that lack a business justification can be seen as unethical or even illegal.
Recommendations
1. Seek Clarification: Politely request your boss to explain why this practice is being proposed and how they believe it aligns with accounting standards.
2. Consult the Accounting Standards: Review relevant sections of GAAP or consult with an accountant who can provide guidance specific to your industry and local regulations.
3. Consider Legal Advice: If you’re still uncertain, it might be wise to seek legal advice from
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