A) Explain What the Term "Earnings Quality" Means

question 44

Essay

A) Explain what the term "earnings quality" means.
B) Differentiate between high quality earnings and low quality earnings.
C) Explain how the estimates used in accrual accounting and operating decisions made by management can affect earnings quality.Give one example of each.

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Definitions:

Noncash Assets

Resources that cannot be quickly turned into cash or are non-liquid, like land, machinery, and intellectual property rights.

Income Sharing

An arrangement where profits or revenues are distributed among stakeholders, partners, or employees, based on a predefined formula.

Gain (Loss)

The financial result that occurs when the selling price of an asset exceeds (or is less than) its purchase price.

Liquidation

The method of terminating a business and allocating its assets to those who have claims, typically happening when the business cannot pay its debts.