Accounting fraud is an attempt to falsify any accounting statement to gain financially. A good example of accounting fraud is deliberately overpricing assets of a company to drive up its share price. Another is to file bankruptcy to avoid debt, instead of filing financial hardship.

Some accounting frauds that a company can do is not listing other incidental assets or prepaid expenses, not showing certain classifications of current liabilities and assets and collapsing short and long term debt to one amount.

The most common method of this fraud is over-recording of sales revenue. A business could ship products to customers that they did not order, knowing that the customers will return these products after the year’s end. Until returns are made, the business will record the shipments as actual sales. Another way for a business to commit fraud is by under-recording expenses, like not recoding a depreciation expense. A business may also choose not to record asset losses that ought to be recognized, like uncollectible accounts receivable or else it might not write down inventory under the market rule or the lower of cost rule. Moreover, a business may also not record the whole amount of the liability expenses, making the liability understated in the balance sheet and therefore, its profit is overstated.