Register now or log in to join your professional community.
Answer be with practical example.
Window dressing in accounting is actions taken by management to improve the appearance of a company's financial statements, usually shortly before the end of an accounting period. Window dressing is particularly common when a business has a large number of shareholders, so that management can give the appearance of a well-run company to investors who probably do not have much day-to-day contact with the business. It may also be used when a company wants to impress a lender in order to qualify for a loan. If a business is closely held, the owners are usually better informed about company results, so there is no reason for anyone to apply window dressing to the financial statements.
Examples of window dressing are:
Cash. Postpone paying suppliers, so that the period-end cash balance appears higher than it should be.
Accounts receivable. Record an unusually low bad debt expense, so that the accounts receivable (and therefore the current ratio) look better than is really the case.
Fixed assets. Sell off those fixed assets with large amounts of accumulated depreciation associated with them, so the net book value of the remaining assets appears to indicate a relatively new cluster of assets.
Revenue. Offer customers an early shipment discount, thereby accelerating revenues from a future period into the current period.
Depreciation. Switch from accelerated to straight-line depreciation in order to reduce the amount of depreciation charged to expense in the current period.
Expenses. Withhold supplier expenses, so that they are recorded in a later period.
The window dressing concept is also used by fund managers, who replace poorly-performing securities with higher-performing ones just before the end of a reporting period, to give the appearance of having a robust set of investments.
The entire concept of window dressing is clearly unethical, since it is misleading. Also, it merely robs results from a future period in order to make the current period look better, so it is extremely short-term in nature.
A strategy used by mutual fund and portfolio managers near the year or quarter end to improve the appearance of the portfolio/fund performance before presenting it to clients or shareholders.
Performance reports and a list of the holdings in a mutual fund are usually sent to clients every quarter, In order to make it more attractive the fund manager will sell stocks with large losses and purchase high flying stocks near the end of the quarter. These securities are then reported as part of the fund's holdings.
Actions/steps taken or not taken prior to issuing financial statements in order to improve the amounts appearing in the financial statements for making your organization's wealthy statements.
following are some general reason for this actionTo obtain funding (to borrow money)To reduce tax paymentsTo smooth financial data (sales, expenses, accounts receivable, etc.)To hide some problems (liquidity, profitability, poor management decisions)
It is falsification of accounts to paint a good picture to outsiders(bankers, Creditors, share holders), when financial situation is not good. It doesnot represent true and fair view of the current situation of company, and will mislead us to worng descision.
Hiding, not reporting, Non disclosure by reclassifying and grouping of for eg Loan, other liablities, non-reporting of contigent liabilities.
Hiking the revenue items , other incomes, omitting expenses, purchases, stock valuation etc
all can be used fully or partially for window dressing
Window Dressing of Accounts may be defined as the measure taken by company just before the closing date of books of accounts to cover up loopholes of Financial Statement.
In general this is done to show the Balance sheet in a better way for raising loans or to shareholders.
example is companies generally do ut to raise capital from market/invertor by showing false DSCR(Debt service Coverage Ratio)...
Window dressing in accounting is actions taken by management to improve the appearance of a company's financial statements, usually shortly before the end of an accounting Period. Window dressing is particularly common when a business has a large number of shareholders, so that management can give the appearance of a well-run company to investors who probably do not have much day-to-day contact with the business. It may also be used when a company wants to impress a lender in order to qualify for a loan. If a business is closely held, the owners are usually better informed about company results, so there is no reason for anyone to apply window dressing to the financial statements.
