Transactions that are Enron used to increase its reported earnings:
• Enron use the way of accounting manipulation to increase its price of stock. And it maintains stock credit rating. Enron reported earning is due to the result of accounting manipulation.
• Assets of Enron were sold to other firms at increased price and there is a promise behind this transaction i.e. Enron should buy backs these assets at an even higher future price.
Therefore, in these circumstances, cash is borrowed by Enron in exchange of a promise made by Enron to pay creditors more in future and this incoming cash is recorded by Enron as a revenue and then promises to buy them back in various methods.
This kind of management resulted in much of revenue growth and profits in 1990 of Enron. Conflict of interest and Enron corporate culture and lot other factors are treated as responsible for Enron collapse. Projection of future income is overly optimistic & inflated.
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