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A Fair Trade

Find out how to barter the right way--and avoid the practices that will land you in hot water.

By C.J. Prince • May 5, 2006 Originally published Oct 10, 2003

Opinions expressed by Entrepreneur contributors are their own.

It wouldn't be the first time a telecom company'saccounting chicanery made headlines, but the ongoing tussle betweenQwest Communications International Inc. and the SEC brought acommon industry practice under the microscope-and may havebusinesses thinking twice about certain strategic agreements. Atleast some of Qwest's trouble is about reportedly recognizingsome $2 billion in revenue from "swap" sales dating backto 1999. The fact that the Denver-based telephone company swappedfiber-optic capacity with other telecommunications firms was hardlyan anomaly; telecom companies had been trading capacity for years,seeing that as a cost-efficient alternative to each companybuilding its own network in a particular area.

But rather than simply exchanging services, companies like Qwestbegan getting the idea to construct two separate transactions, witheach side writing a check to the other. "That's where theaccounting trick comes in," says Mark DeFond, professor ofaccounting at the University of Southern California's LeventhalSchool of Accounting in Los Angeles. "When I receive a checkfrom you, I book that as revenue, but when I write a check to you,I don't book it as an expense." Rather, the expense isamortized over a period of time, while the revenue is bookedupfront.

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