Accounting 101 at WorldCom.(Knight Ridder/Tribune News Service)

The following editorial appeared in the Chicago Tribune on Saturday, June 29:

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Sprinkle it around so no one will notice. That's apparently what telecommunications giant WorldCom did in improperly accounting for some expenses over the last year. Eventually, though, someone did notice _ it's hard to hide $3.8 billion.

This is a massive case of apparent accounting fraud, but it's also a fairly simple case.

Under U.S. accounting rules, companies are allowed to differentiate between buying a factory, for example, and buying pencils and paper clips. That's true even if the company spent, say, $100 million on each in a given year.

One is an investment that is going to produce benefits for a long time. As such, it's considered a capital expense that legitimately can be divided up and accounted for over years. The other is an ongoing operating expense and must be counted as such right away.

Beginning last year, WorldCom began spreading the cost of ongoing telecommunication system expenses (think pencils and paper clips) among capital expense accounts (think factories).