Back when I was studying accounting at Columbia University’s business school, the professor had a handy way to determine whether it made sense for a company to recognize revenue: Had it completed the hard task in its business?


GAAP — generally accepted accounting rules — were not so simple, he said, and sometimes let companies record revenue — and post profits — far too early. Companies that took advantage of such rules could well be reporting earnings they would never see.


The hard task varied from business to business, he said. For a farmer, the hard part was done when the crop was harvested. Even if it had not yet been sold, there was a ready market for corn or soybeans or whatever, and money had been earned. For a manufacturer of tourist tchotchkes, making them was the easy part. Persuading someone to buy them was the difficult part, and revenue recognition should be delayed.


Over the years, I’ve seen any number of accounting disasters, ranging from Enron to subprime mortgages, where that simple principle was ignored. Sometimes that accounting was within the limits of GAAP and sometimes it was not. In all cases, it produced profits that vanished before they were actually realized.


Now there is another example at MF Global, the brokerage firm that Jon Corzine ran into the ground.


The accounting maneuver allowed MF Global to buy bonds issued by European countries and book profits the same day. That is the rough equivalent of a farmer’s booking profits as soon as he plants the crop.


To be fair to MF Global, it did disclose what it was doing in a footnote to its financial statements. The accounting appears to have been proper under accounting rules that are now being reconsidered.


In a minute, I’ll explain exactly what the company did and how the accounting rules came to make it possible to report profits that were at best premature and at worst fictional.


But for now, consider the effect such rules had. MF Global, when Mr. Corzine took it over in 2010, was unprofitable. Here was a way to report instant profits and make the financials look better. There is no way to know whether the firm would have taken fewer risks without the foolish accounting, but perhaps it would have. In any case, regulators and investors might have seen a less rosy — and more realistic — picture in the months leading up to the firm’s failure last fall.


The transactions were laid out this week in reports from two trustees trying to unravel the MF Global mess and return as much money as possible to customers.


The fact that there are two trustees, one appointed by the Securities Investor Protection Corporation, which provides reimbursement for brokerage customers under some circumstances, and the other by the bankruptcy court judge, only begins to address the complexities of the mess made by Mr. Corzine. There are also “special administrators” in London, since many of the trades were carried out through a British subsidiary. The three sets of trustees and administrators have spent a lot of time fighting one another.


“Among the lines of business that Mr. Corzine built up to attempt to improve profitability at MF Global was the trading of a portfolio of European debt securities,” states the report by the SIPC trustee, James W. Giddens. “These trades provided paper profits booked at the time of the trades, but presented substantial liquidity risks including significant margin demands that put further stress on MF Global’s daily cash needs.”


How, you might wonder, could MF Global report profits immediately? Shouldn’t it wait for interest to be paid on the bonds, or at least for the market value of the bonds to rise?


To my old professor, the answer to that would have been yes. But that is not what the rules said.


To explain how that worked, we must venture into the world of repos. But don’t let your eyes glaze over. A repo in reality is usually just a loan. The lender gets an agreed rate of interest, and it gets possession of the collateral while the loan is outstanding. That way, if there is a default by the borrower, the lender can sell the collateral and not have to wait to be paid.