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Health South Fraudulent Accounting Essay

1087 words - 5 pages

We learned in class by watching the 6 video clips regarding the big Scandal with HealthSouth that one the two major activities in their fraud was falsely capitalizing regular expenses
In a nutshell
HealthSouth is A Public company who is providing outpatient rehabilitation services, They noticed that the business is not that great as they proclaimed, business is not so profitable and it also have too much expenses which this will end up taking away from the profit and they will show lower earnings that expected so they came up with a fraudulent idea to create false entries in their books by claiming that the expenses they have is not real expenses, they called it investing like everyone understands when a business is buying a building its not called a expenses which will show the business less profitable ,it is the opposite the business is growing, the same think they did with entering regular expenses like payroll or utility expenses

But in order the books should look a little acceptable and no one should come up on their fraud instantly and specially the lower level bookkeeping team by doing their day to day entries and knowing that utility expenses is not a capital improvement they had to do it in a professional way
Let’s go in to details of entering an expenses and closing it off by year end so we can understand how they did it to avoid being suspicious for their bookkeepers and it should be polished nicely

REGULAR EXPENSES ENTRY
As we learned in class by keeping accounting on the simple way of a General ledger the entries goes as follows, every entry is A Debit for 1 account following with a credit on the other for Example when you have a Rent Expenses of $ 15,000 meaning you taking out money from cash account to pay your rent the entry is A Debit of $ 15,000 for the Rent Expenses account and a credit of $ 15,000 for the Cash Account
What will happen after such a entry is that the trial balance will be correct the Debit and The Credit Accounts will match evenly and if you will drill in deeper into the account equation (Assets = Liabilities + Owner's Capital ) it will also match up
When it comes to the end of the year when closing all temporary accounts which is the expenses & the income accounts into the income summery account (and let’s say that your income account was $ 50,000) and then you closing the income summery account into the capital account which in our case you will increasing Capital with $ 35,000 ($50,000 Income minus $ 15,000 Expenses) and again the trial balance and the account equation are correct

CAPITALIZING EXPENSES ENTRY
This is a different kind of expenses for Example you bought a building for your business and you need to upgrade the building with $ 15,000 , But Remember that this expenses is actually different this is increasing your Assets by increasing the value of your building but during the year you want to keep a detailed accounting on your building improvement like Plumbing, Electric,...

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