Which statement about fictitious revenue schemes is TRUE?

• A. Uncollected accounts receivable are a red flag
• B. If fictitious revenue occurs, there will typically be no accounts receivable
• C. Fictitious revenues must involve fake customers
• D. The debit side usually goes to accounts payable

Answer: (A)

Uncollected accounts receivable is a red flag in fictitious revenue schemes. When revenue is recorded to inflate income, it should be tied to a real sale and eventual collection. If the company ends up with receivables that aren’t being collected, it suggests the revenue wasn’t truly earned or the sale didn’t occur as recorded. That mismatch between reported revenue and cash collection is a classic indicator of fraud, because the books show revenue with no reliable path to cash.

The other statements don’t consistently describe how fictitious revenue typically works. It isn’t universal that fictitious revenue results in no accounts receivable; many schemes involve receivables that are uncollectible or even fake. Fictitious revenues also do not have to involve fake customers; some frauds rely on inflating invoices to real customers or creating revenue without a real sale. And the debit side of a revenue entry is usually to an asset like accounts receivable or cash, not to accounts payable, which is a liability and not part of recognizing revenue.