I have posted a balance sheet and an income statement using an excel template in the first tab. It is labeled Balance Sheet and Income St. Column D shows the original amounts for our fictitious company Fraud R Us! Column I shows the adjusted (fraudulent) balances. You need to create five additional fraudulent journal entries that will make the financial statements appear much better than they actually are. You will record these journal entries in columns F and H of the Excel template. You will also write up each journal entry in the second tab of the Excel workbook, which is labeled Entries to commit FS Fraud. In the second tab (Entries to commit FS Fraud), you must give a brief explanation of the purpose of your entry and why you dont think it will be easily discovered. I will provide the first entry as an example: (1) Accounts Receivable $10,000 Sales $10,000 Memo: The accounts receivable do not have to have any outside verification. Therefore, if I (the fraudster) has access to the company books, I can create a false customer and then write it off later, and hopefully, the external auditor will not catch it. You will notice that cells H73 and I41are red. These cells should always have a zero balance because they contain formulas to make sure all accounts stay in balance and the income statement reconciles with the balance sheet. YOUR GOAL! Create a fraudulent set of financial statements using five additional journal entries that will not be easily caught by the external auditor! (Hint! Dont manipulate the cash account. The auditors always compare the companys numbers to the banks numbers and reconcile the difference.) Be creative and try to think like a fraudster!

A 1 Acct 410 2 Financial Statement Fraud 3 Second year of operation These FS will be audited 4 5 B Assets 6 7 Cash 8 Accounts Receivable 9 Reserved 10 Inventory 11 Prepaid Expenses 12 Total Current Assets 13 14 Fixed Assets 15 Accumulated Depreciation 16 Net Fixed Assets 17 Intangible Assets 18 Reserved 19 20 Total L.T. Assets 21 Total Assets 22 23 Liabilities 24 Current Liabilities 25 Accounts Payable 26 Accrued Liabilities 27 S.T. Notes Payable 28 Total Current Liabilities 29 30 L.T. Notes Payable 31 Total L.T. Debt 32 Total Liabilities 33 34 Common Stock 35 Additional Paid In Capital 36 Beg. Retained Earnings 37 Net Income 38 Total Stockholders' Equity 39 40 Liabilities & Stockholders' equity 41 42 Income Statement 43 Sales D Original 2,000 5,000 (1) 25,000 3,000 35,000 150,000 (10,000) 140,000 5,000 145,000 180,000 23,000 12,000 60,000 95,000 105,000 105,000 200,000 10,000 500 (30,500) (20,000) E 180,000 110,000 Balance Sheet and Income St. LL F FRAUD R' US! DEBIT G 10,000 H CREDIT Adjusted 2,000 15,000 25,000 3,000 45,000 150,000 (10,000) 140,000 5,000 145,000 190,000 23,000 12,000 60,000 95,000 105,000 105,000 200,000 10,000 500 (20,500) (10,000) 190,000 (1) 10,000 120,000 Entries to commit FS Fraud B C 40 Liabilities & Stockholders' equity 41 42 Income Statement 43 Sales 44 Less: Returns & Allowances 45 Net Sales 46 47 Cost of Goods Sold 48 49 Gross Profit 50 51 Salaries & Wages Expense 52 Advertising Expense 53 Amortization Expense 54 Bad Debt Expense 55 Delivery Expense 56 Depreciation Expense 57 Insurance Expense 58 Legal & Professional Services 59 Miscellaneous Expense 60 Office Expense 61 Shipping & Supplies Expense 62 Telephone & Internet Expense 63 Travel & Entertainment 64 Utilities Expense 65 Total Oper. Expenses 66 67 Net Operating Income 68 Interest Expense 69 Income Tax Expense 70 Other Expenses 71 72 Net Income 73 74 D 180,000 110,000 (3,000) 107,000 70,000 37,000 20,000 1,500 1,200 10,000 5,000 3,000 100 2,500 3,500 2,700 6,000 4,500 60,000 (23,000) 7,500 7,500 (30,500) E F 10,000 G (1) H 10,000 10,000 190,000 120,000 (3,000) 117,000 70,000 47,000 20,000 1,500 1,200 10,000 5,000 3,000 100 2,500 3,500 2,700 6,000 4,500 60,000 (13,000) 7,500 7,500 (20,500) 1 NM 550M 2 3 4 6 7 HERES 600 10 11 12 13 14 15 A B Entries to commit FS Fraud (1) Accounts Receivable Sales D E F $10,000 G H I J K L $10,000 Memo: The accounts receivables do not have to have any outside verification, unlike a bank statement with a checking account. Therefore, if I (the recordkeeper) has access to the company books, I can create a false customer and then write it off later, and hopefully, no one will catch it. M N A 1 Acct 410 2 Financial Statement Fraud 3 Second year of operation These FS will be audited 4 5 B Assets 6 7 Cash 8 Accounts Receivable 9 Reserved 10 Inventory 11 Prepaid Expenses 12 Total Current Assets 13 14 Fixed Assets 15 Accumulated Depreciation 16 Net Fixed Assets 17 Intangible Assets 18 Reserved 19 20 Total L.T. Assets 21 Total Assets 22 23 Liabilities 24 Current Liabilities 25 Accounts Payable 26 Accrued Liabilities 27 S.T. Notes Payable 28 Total Current Liabilities 29 30 L.T. Notes Payable 31 Total L.T. Debt 32 Total Liabilities 33 34 Common Stock 35 Additional Paid In Capital 36 Beg. Retained Earnings 37 Net Income 38 Total Stockholders' Equity 39 40 Liabilities & Stockholders' equity 41 42 Income Statement 43 Sales D Original 2,000 5,000 (1) 25,000 3,000 35,000 150,000 (10,000) 140,000 5,000 145,000 180,000 23,000 12,000 60,000 95,000 105,000 105,000 200,000 10,000 500 (30,500) (20,000) E 180,000 110,000 Balance Sheet and Income St. LL F FRAUD R' US! DEBIT G 10,000 H CREDIT Adjusted 2,000 15,000 25,000 3,000 45,000 150,000 (10,000) 140,000 5,000 145,000 190,000 23,000 12,000 60,000 95,000 105,000 105,000 200,000 10,000 500 (20,500) (10,000) 190,000 (1) 10,000 120,000 Entries to commit FS Fraud B C 40 Liabilities & Stockholders' equity 41 42 Income Statement 43 Sales 44 Less: Returns & Allowances 45 Net Sales 46 47 Cost of Goods Sold 48 49 Gross Profit 50 51 Salaries & Wages Expense 52 Advertising Expense 53 Amortization Expense 54 Bad Debt Expense 55 Delivery Expense 56 Depreciation Expense 57 Insurance Expense 58 Legal & Professional Services 59 Miscellaneous Expense 60 Office Expense 61 Shipping & Supplies Expense 62 Telephone & Internet Expense 63 Travel & Entertainment 64 Utilities Expense 65 Total Oper. Expenses 66 67 Net Operating Income 68 Interest Expense 69 Income Tax Expense 70 Other Expenses 71 72 Net Income 73 74 D 180,000 110,000 (3,000) 107,000 70,000 37,000 20,000 1,500 1,200 10,000 5,000 3,000 100 2,500 3,500 2,700 6,000 4,500 60,000 (23,000) 7,500 7,500 (30,500) E F 10,000 G (1) H 10,000 10,000 190,000 120,000 (3,000) 117,000 70,000 47,000 20,000 1,500 1,200 10,000 5,000 3,000 100 2,500 3,500 2,700 6,000 4,500 60,000 (13,000) 7,500 7,500 (20,500) 1 NM 550M 2 3 4 6 7 HERES 600 10 11 12 13 14 15 A B Entries to commit FS Fraud (1) Accounts Receivable Sales D E F $10,000 G H I J K L $10,000 Memo: The accounts receivables do not have to have any outside verification, unlike a bank statement with a checking account. Therefore, if I (the recordkeeper) has access to the company books, I can create a false customer and then write it off later, and hopefully, no one will catch it. M N