Which of the following is a common sign of fictitious revenue schemes?

• A. On-time cash collections
• B. Mysterious accounts receivable that are long overdue
• C. Rapid inventory turnover
• D. Low accounts payable balances

Answer: (B)

Fictitious revenue schemes often show up when there are fake or unsupported sales that inflate earnings, yet no real cash flows accompany them. A strong red flag is accounts receivable that look legitimate but are old and unpaid. When revenue is recognized without real, collectible customers, the AR balance can become outdated and linger well beyond normal collection cycles. Seeing receivables that are mysteriously long overdue suggests the company may have recorded revenue that isn’t being converted into cash, which aligns with fictitious or unsupported sales.

In contrast, on-time cash collections would imply the sales are real and being paid for, which is inconsistent with a fictitious revenue scheme. Rapid inventory turnover or low accounts payable might signal other issues, but they don’t directly point to fictitious revenue in the same way aging, overdue receivables do.