The affects of such a mistake are very dangerous. Any discrepancy in financial reports can lead to erroneous budgets and financial statements. Hence, all good accountants must be sharp in recognizing any such mistakes and should quickly correct them in order to avoid disastrous and devastating financial effects. An overstatement of Account Receivable would overstate the current or liquid assets of a company. This will increase the assets portion of the company in balance. Due to this error, the equity side of the balance sheet will not agree with the asset side. Similarly, it would also understate the cash flows. Since an increase in the current assets or receivable is shown as decrease in the cash in hand or cash outflow for the company, any increase in account receivable would set company in a position where it would should more cash outflow than actual. This is particularly harmful for the company, as it would set the finance department a task of bringing more cash into the company. This would create an imbalance and may lead to disastrous effects on the overall working capital and efficiency of the company. A lot of capital budgeting projects might get delayed because this type of situation would lead the company finance official and executives into believing that the cash position of the company is worst than it actually is and hence the company would try to make their position more stable before indulging in buying of assets and funding new project.
References:
Baird’s Private Wealth Management Research. "Investing in Closed-End Funds ." Research. 2013.
Bary, Andrew. The Case for Closed-End Funds. 1 December 2013. 11 April 2014 <http://online.barrons.com/news/articles/SB50001424053111904399004579266283134154684>.
CFA Institute. "Alternative Inevstments." Institute, CFA. Alternative Investments and Derivatives. Boston: Custom, 2011. 245-247.
