Fudging is not an official “accounting term”. I don’t ever remember hearing that word in vocabulary of Financial or Managerial Accounting Courses but it is definitely a common word used in accounting around the offices especially at tax time.
As a professional Bookkeeping and Consulting company owner, I specialize in making sure that clients monitor their day-to-day company activities on a regular basis. For most of my clients that is a monthly review at month-end closing. I treat them and teach to operate as a large corporation by updated all account activity, reconciling accounts (both bank and credit card) and provide a monthly Revenue and Expense Statement (Profit & Loss). After the statement is generated, we review it for information about the business; finding ways to improve, maintain, and even generate more profit. It’s the way companies improve their ‘bottom line.’
Fudging occurs when a company wants to expand, look good for a loan or even complete a tax return that requires an accountant to recreate an entire year of expenses in less than a month and complete a tax return. Fudging means making the numbers work in a systematic method to look as polished as actual numbers would if they were prepared correctly or timely. You’ll hear the term referenced only in an office setting behind closed doors.
Fudging is a last resort, a hail mary act of desperation. The numbers have to gel for an accountant to have a complete picture. When an entrepreneur has neglected to handle ‘business’ all year even he or she will be unable to remember all transactions and where they occurred, why etc? Fudging is a method used to complete a picture as accurately as possible without distorting the entire picture or lying. Remember GAAP is always conservative to eliminate the possibility of fraudulent behavior and practices as well as distorting of a company’s financial position. Fudging isn’t condoned, it isn’t taught and it is not an accounting principle. Fudging for all practical purposes is a band-aid to temporarily fix a problem. In other words, the numbers are pulled together enough to get your taxes prepared but those numbers cannot paint the picture one needs to run a business successfully.
Fudging is never a long-term option! Many are the entrepreneurs fudging their way through the business. Some even go through the trouble and cost of becoming a corporation as if that alone will fix their lack of financial reporting inconsistencies when actually they have made the problem worse. Now instead of just being a poorly run sole-proprietor business, you can potentially commit criminal acts of stealing from the company if you co-mingle funds. You know mixing of personal and business funds instead of having payroll checks, paying personal bills from the business account instead of paying one a salary; you know not handling business. Without professional bookkeeping, the entrepreneur will fudge all through the business and eventually fudge his or her way out of business, either through negative cash flow or all the other agencies that can and will shut the business down.
Fudging does not work! You can try but numbers tell truths about businesses that words can never express. A company’s net worth will tell you whether the company has employees or not! A company’s bottom line speaks volumes because without proper bookkeeping/consulting, the entrepreneur will never know his or her bottom line!
It’s the 5th month of a new year, a year you said would be your year! What will you do with it? Are you still fudging? Some of you filed extensions so you will wait 5 more months to close last year, all while not doing anything to make this year better! Don’t keep trying to convince others that what you are doing is profitable, get in the know yourself! Know better and do better with accurate actual numbers! Stop fudging, it’s a messy lie that everyone can see right through.
STOP THE FUDGE!
