Which statement best describes fictitious revenue in fraud?

Which statement best describes fictitious revenue in fraud?

• A. Recording revenue when cash has not yet been received
• B. Recognizing revenue from returns
• C. Creating revenue that did not exist
• D. Reducing revenue to show lower profit

Answer: (C)

Fictitious revenue means inflating earnings by inventing sales that never actually occurred. The statement that best describes this is creating revenue that did not exist, because it directly captures the act of reporting fake sales to deceive readers of the financial statements. In fraud schemes, this can involve fake customers, fake invoices, or phantom shipments, all aimed at boosting reported revenue and assets. Recording revenue before cash is received is about timing in revenue recognition and can be legitimate under proper conditions when the revenue is earned and collection is reasonably assured; it’s not, by itself, about creating revenue. Recognizing revenue from returns relates to how sales that may be reversed are accounted for, which is a different issue about adjusting revenue for eventual reversals. Reducing revenue to show lower profit describes understating earnings, not fabricating new revenue.

Fictitious revenue means inflating earnings by inventing sales that never actually occurred. The statement that best describes this is creating revenue that did not exist, because it directly captures the act of reporting fake sales to deceive readers of the financial statements. In fraud schemes, this can involve fake customers, fake invoices, or phantom shipments, all aimed at boosting reported revenue and assets.

Recording revenue before cash is received is about timing in revenue recognition and can be legitimate under proper conditions when the revenue is earned and collection is reasonably assured; it’s not, by itself, about creating revenue. Recognizing revenue from returns relates to how sales that may be reversed are accounted for, which is a different issue about adjusting revenue for eventual reversals. Reducing revenue to show lower profit describes understating earnings, not fabricating new revenue.