Mr. Stone, CEO of Incognito, Inc., will earn a bonus of $50K if the company's operating profit exceeds a million dollars this quarter. However, business is a bit slow and expenses have been a little high recently. So Mr. Stone makes some choices. "Let's just hold on to a few of these unusual expenses and run them through next quarter. And I know we're going to land that big account across town any day so let's count on it now and "virtually ship" 2,000 widgets to them today . . . credit sales, debit receivables, credit inventory, debit cost of sales. Now those earnings look better, don't they? And I'll be sure to reverse those items in a few weeks."
"Oh yes, and let's not put that footnote on the financial statement about possible contingent liability for a lawsuit that may well be filed if our insurance company denies that old claim."