Definition of Window Dressing
Window dressing refers to actions taken or not taken prior to issuing financial statements in order to improve the appearance of the financial statements.
Example of Window Dressing
Let’s assume that a company operates throughout the year with a negative balance in its general ledger account Cash: Checking Account. (At the bank, the checking account has a positive balance due to the time it takes for the company’s checks to clear.) In order to avoid its December 31 balance sheet reporting a negative cash balance, the company decides to postpone issuing checks for vendors’ invoices that should have been paid. The postponement allows its general ledger Cash account to temporarily have a positive amount. On January 2, the company will issue the postponed checks and will resume its normal practice of having a negative balance in its Cash account.