Lapping Scheme

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DEFINITION of 'Lapping Scheme'

An accounting method that involves altering the accounts receivable section of the balance sheet when cash that is intended for the payment of a receivable is stolen. The method involves taking the first receivable collected and using that to cover the theft, while the second receivable collected is accounted to the first, the third receivable to the second, and so on.

INVESTOPEDIA EXPLAINS 'Lapping Scheme'

For example, assume that $100 that was to be used to pay for a receivable is stolen from ZXC Inc. The next receivable ($125) is paid to ZXC a few days later. In a lapping scheme, the first $100 of this second payment will be accounted to the first receivable account, while the remaining $25 will be put toward the second receivable.

A lapping scheme may initially be a convenient way for a company to account for theft, but the firm must eventually account for the theft as a loss and deduct it from net income.

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