Which of the following statements about the quality of earnings ratio is true?
A) When sales are growing, receivables and inventory normally increase faster than payables so the ratio increases.
B) Seasonal variations in sales have no impact on the quality of earnings ratio.
C) Failure to accrue appropriate expenses will inﬂate net earnings and reduce the quality of earnings ratio.
D) Failure to accrue appropriate expenses will inﬂate net earnings and increase the quality of earnings ratio.

Question

Quizplus · Accepted Answer

Failure to accrue appropriate expenses results in overstated net earnings, which can mislead investors about the true financial health of a company. This manipulation reduces the quality of earnings ratio because it indicates that the company's earnings may not be sustainable or reflective of its actual operational performance.

Which of the Following Statements About the Quality of Earnings