Overstating Sales or Window Dressing 

Overstating sales or window dressing means making the sales numbers look better than they really are. 

This is usually done to impress investors, bosses, or customers, but it’s not honest.

Impact on Financials: When a company overstates sales, it makes its financial results look better than they really are.

Here’s what happens: 

Revenue (Sales) Goes Up: The company shows more money coming in than it actually earned. 

Profit Appears Higher: Since sales look bigger, the company seems to be making more profit (because profit = sales - costs). 

Assets May Be Inflated: If the company records sales before getting paid (like recording a sale but the customer hasn’t paid), it might also show more money owed to them (accounts receivable) on the balance sheet than is real.

Misleads Investors and Lenders: People who want to invest or lend money think the company is doing better financially and might give money based on false information. 

Can Lead to Problems Later: When the truth comes out (sales weren’t real), the company might face legal trouble, lose trust, and its stock price can fall. 

Example: A company actually made sales of £10,000 this month. However, the company overstates sales by recording £12,000 instead of £10,000. 

So, sales are overstated by £2,000. What happens? Overstated Sales: £12,000 Actual Sales: £10,000 Overstatement Amount: £2,000 

Effect on Profit: Let's say the profit margin on sales is 20%. Correct profit: 20% of £10,000 = £2,000 Reported profit (based on overstated sales): 20% of £12,000 = £2,400

Comparison: The company reports £12,000 in sales but only earned £10,000. The company reports £2,400 profit but actually earned £2,000. So, the overstatement of sales by £2,000 causes the profit to be overstated by £400. So, overstating sales makes the company look healthier now but creates big risks and problems later.