Finance
Fact-checked

At WiseGEEK, we're committed to delivering accurate, trustworthy information. Our expert-authored content is rigorously fact-checked and sourced from credible authorities. Discover how we uphold the highest standards in providing you with reliable knowledge.

Learn more...

What does "Cook the Books" Mean?

Malcolm Tatum
Malcolm Tatum
Malcolm Tatum
Malcolm Tatum

The expression “cook the books” refers to the practice of arranging company financials in a manner that tends to call attention to positive data but obscures or greatly minimizes the ability to identify negative data. As a result, this type of creative accounting helps to present a false image of the true nature of the company’s financial condition. While most companies that choose to cook the books make it a point to stay barely within the legal restrictions that relate to keeping company records, there are instances where information is omitted or falsified as part of the process.

There are several reasons why a business may choose to cook the books. One motive is to secure additional funding in order to maintain or expand the business. To that end, the business may develop a set of company books to show prospective lenders or investors. The data is arranged so that the business appears to be more profitable and stable than properly organized accounting records would indicate.

The term "cook the books" may refer to downplaying or obscuring negative data.
The term "cook the books" may refer to downplaying or obscuring negative data.

A company may choose to cook the books in an attempt to improve financial status perceptions within the business community. For example, the corporation may make public data that spotlights the sales figures for a recent period, while failing to indicate how operating and raw materials expenses cut deeply into the revenue generated from those sales. The figures may also fail to note how much of those sales are currently classified as over 120 days in arrears or as bad debt.

In order to keep penalties and possible legal action to a minimum, it is usually necessary to cook the books in a manner that follows the actual letter of standard accounting practices, while overlooking the intent of those basic and common rules. Taking care to follow this pattern makes it easier to prove that a particular line item in the financial data is in fact accurate, although there may be some difference of opinion on how and where in the company financials the data is recorded.

It is important to note there is a great deal of difference between companies that deliberately choose to cook the books and businesses that unintentionally fail to follow proper accounting guidelines. In the former, there is the intention of presenting a false perception of the true state of the corporate accounting. By contrast, the latter is not attempting to hide anything, but lacks the organization and the skills to maintain the financial data properly. Usually, there is little effort required to tell the difference between these two situations.

Malcolm Tatum
Malcolm Tatum

After many years in the teleconferencing industry, Michael decided to embrace his passion for trivia, research, and writing by becoming a full-time freelance writer. Since then, he has contributed articles to a variety of print and online publications, including WiseGEEK, and his work has also appeared in poetry collections, devotional anthologies, and several newspapers. Malcolm’s other interests include collecting vinyl records, minor league baseball, and cycling.

Learn more...
Malcolm Tatum
Malcolm Tatum

After many years in the teleconferencing industry, Michael decided to embrace his passion for trivia, research, and writing by becoming a full-time freelance writer. Since then, he has contributed articles to a variety of print and online publications, including WiseGEEK, and his work has also appeared in poetry collections, devotional anthologies, and several newspapers. Malcolm’s other interests include collecting vinyl records, minor league baseball, and cycling.

Learn more...

Discussion Comments

Reminiscence

I think cooking the books is what did in a lot of those gangsters from the 20s and 30s. They'd hire a good bookkeeper who didn't ask many questions, and he'd keep two sets of books for the gangster's semi-legitimate company. One book would show nothing but legitimate business expenses and sales profits, but the other one would keep track of all the illegal money from prostitution, gambling and liquor operations. Finding and interrogating these bookkeepers would be the best way to prove criminal activity in court.

Post your comments
Login:
Forgot password?
Register:
    • The term "cook the books" may refer to downplaying or obscuring negative data.
      By: FotolEdhar
      The term "cook the books" may refer to downplaying or obscuring negative data.