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This posting addresses Enron's accounting practices.

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"The primary motivators for Enron's accounting and financial transactions were to keep income, and cash flow up and inflated and liabilities off the books".

Is this the 'purpose' of accounting and finance, to keep income up, etc? Are the negative issues now associated with accounting due to accounting itself? What about accounting conventions? Have they lost value to decision makers also?

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Solution Summary

The solution provides a detailed discussion about Enron's accounting practices and the basic methods they used to keep net income high.

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It is very accurate that the primary motivators for Enron's fraudulent accounting practices were to keep cash flow up and inflated, and liabilities off the books. In fact, one of the main tricks Enron used was to take poor performing assets and hide them in Special Purpose Entities (SPEs), which kept them off of Enron's balance sheet, and transferred them onto the balance sheet of an Enron subsidiary, which was never disclosed on Enron's actual financial statements.

The purpose of accounting and finance is not to keep income up. The purpose of accounting and finance, at it's most primary level, is to record all monies coming into, and going out of the business. This very basic, primary function allows accountants and executives to take all of the information that has been recorded over a certain period (usually monthly, annually, or quarterly), and compile the information to usable financial statements, including an income statement, balance sheet, and statement of cash flows.

By doing so, the financial statement user, including executives, creditors, analysts and investors can gain a snapshot of the business at ...

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