Incorrect Practice: For financial gain, Redlands Manufacturing, Inc. shipped equipment to vendors with out a full merchant agreement and agreed to except returned merchandise back if it was not sold by yearend. This can inflates the sales figures which will increase your assets. By Redlands not recognizing the allowance for the merchandise when the products are returned, this results in false reporting of assets and cash flow. If accounting records of the company are reporting false monetary, then the company may over extend themselves. This is poor management and can be detrimental to the company.
Incorrect Practice: Redlands made a false claim to some of their suppliers. Stating the merchandise supplied by the supplier was damaged and in exchanged for customer satisfaction the supplier gave Redlands a discount on the merchandise order. In reality the merchandise was not damage but was used for regular company production. Redlands received merchandise at discounted rates, which will alter accounting records because it is not an accurate account of supplies being used for manufacturing and sold at the cost of production. Again, this will show an increase in cash flow which is not accurate.
Capitalizing Revenue Expenditures:
Incorrect Practice: Redlands reported multiple expenses as 1-time expense on balance sheets as long-term assets instead of an expense for the current fiscal year. Some items were recognized a current expenses, which was refer to as depreciation. If the company continues to file documentation in this fashion then the company is allowing depreciation for incorrect expenses showing a higher capital gain.