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Gazz Electronics manufactures audio equipment, selling itthrough various distributors.

Gazz's days sales outstanding (Accounts Receivable/Avg dailycredit sales) figures increased steadily in 2008 & spikeddramatically in 2009, peaking at 120 days in the 2nd quarter. Inthe 3rd quarter of 2009, Gazz's day sales outstanding figuredropped to 90 days. Its CFO engineered this drop by artificiallyreducing the amount of outstanding accounts receivable.

Channel partners with large outstanding receivables were pressuredinto signing notes for those amounts. Once sale personnel securedthe notes, the CFO directed a reclassification entry to the generalledger, converting more than $30 million in trade receivables intonotes receivables, which are not included in the day salesoutstanding calculation.

This reclassification was not disclosed in the Form 10-Q that Gazzfiled for that quarter.What might be the motive for the CFO's actions? Explain your answer.

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Accounting Basics, Accounting

Category:- Accounting Basics
Reference No.:- M9988750

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