Which practice illustrates recording fictitious revenue?

• A. Recording revenue from non-existent sales supported by fake invoices.
• B. Recording revenue only when cash is received and goods delivered.
• C. Recording revenue for consignment sales without checking terms.
• D. Recording refunds as revenue.

Answer: (A)

Recording revenue from non-existent sales supported by fake invoices is a clear example of fictitious revenue. It involves creating fraudulent documents to make it look like a sale occurred when no real transaction happened, inflating earnings and accounts receivable. This violates how revenue should be earned and supported, relying on verifiable evidence such as valid contracts, actual delivery or performance, and collectible payments. In practice, auditors check consistency among sales orders, shipping records, invoices, and cash receipts to guard against this kind of fraud.

By contrast, recognizing revenue only when cash is received and goods are delivered reflects a cautious approach to timing and may be legitimate under certain accounting methods, but it doesn’t inherently involve false sales. Recording revenue for consignment sales without checking terms introduces risk of improper recognition, but it’s not the same as recording revenue for non-existent sales. Recording refunds as revenue is the opposite of proper treatment and would misstate results, since refunds reduce revenue rather than increase it.