channel stuffing


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Channel Stuffing

An illegal practice in which a company willfully sells more of its product to distributors than the distributors can sell to customers. The company makes these sales on credit, which temporarily boosts its accounts receivable and by extension its current assets. This makes the company look healthier than it really is which can raise its stock price. Eventually, when the distributors are unable to sell the product they return it to the company instead of paying, which reduces the accounts receivable and brings the company's balance sheet in line with reality.

channel stuffing

Artificially inflating current sales and earnings by shipping more goods than would normally be ordered. For example, an appliance manufacturer may inflate revenues and earnings in the current accounting period by shipping to retail stores more refrigerators, stoves, and dishwashers than the stores are likely to sell. The practice of channel stuffing borrows revenues and earnings from the future because overstocked customers will reduce orders in future periods.
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Acer has written off huge inventory in the past and there have been reports about channel stuffing.
While many channel stuffing schemes fall into that gray area between aggressive earnings management and outright fraud, the tactics involved in channel stuffing enhance current earnings at the expense of future sales, which leads to a slippery slope of needing to artificially boost future earnings as well.
It's a revenue recognition case alleging that channel stuffing, side deals and other arrangements artificially inflated revenue.
Channel stuffing occurs when a company induces retailers along its distribution channel to substantially increase their purchases before they would, in the normal course, otherwise purchase products from a company.
Some manufacturers will continue their traditional product push cycle of long production runs and channel stuffing.
Revenue Recognition: The Games People Play, covering such issues as channel stuffing and fictitious entries.
Maffei admitted to "the usual seasonal PC weakness" and said Microsoft was seeing the effects of some channel stuffing and inventory clearouts due to the shift over to the Pentium III.
Shipments in material amounts near or at year-end may not necessarily translate to channel stuffing, but if there is a sense of pressure within the company to book revenue, past events have shown that not all the revenue was legitimate.
which accounted for 51 percent of the Company's accounts receivable last year) and the possibility that channel stuffing may have hidden slowing growth.
Channel stuffing may work for awhile, however problems arise when high sales from past quarters are made at the expense of poor sales in another quarter.