In the WorldCom scandal, what expense category did executives improperly record as investments?

WorldCom executives improperly recorded operating expenses as investments in the accounting scandal.

The expenses were mainly ordinary line costs paid to other telecommunications networks for carrying WorldCom’s customers’ calls. Under normal accounting rules, these costs should have been recorded as current expenses, reducing the company’s reported profit.

Instead, WorldCom capitalized billions of dollars of line costs as if they were long-term assets. That treatment postponed recognition of the expenses and made the company appear more profitable than it really was. The entries were directed by senior finance executives and helped conceal the company’s deteriorating performance.

WorldCom filed for bankruptcy in July 2002, then the largest bankruptcy in U.S. history at that point. The company later emerged as MCI. A frequent confusion is to describe the misconduct as simply “fake revenue”; the central accounting manipulation involved shifting real operating costs into the asset accounts.