Accounting Dictionary

Quality of Earnings

Companies have a higher quality of earnings if increased profits are due to increased revenues or lower costs rather than due to statistical changes such as changes in accounting methods.

Let’s say ABC Company depreciates its $10,000 asset with a straight line method over 10 years for a deduction of $1,000 a year while DEF Company depreciates its $10,000 asset with a straight line method over 5 years for a deduction of $2,000 a year. ABC had sales of $4000 minus depreciation of $1000 for a profit of $3000. DEF had sales of $5000 minus depreciation of $2000 for a profit of $3000. DEF has a higher quality of earnings because in their case the net income is due more to actual revenue received by the company rather than by which depreciation method they chose to use.

Sign Up to Learn More!

Join our mailing list today to get notified of new discount offers, course updates, Roger CPA Review news, and more!

Scroll to Top
Get Your eBook Today!

Fill out this form to have our eBook sent directly to your email address.

Access Until You Pass

The Elite-Unlimited course provides UNLIMITED continuing access to your course materials until you pass the CPA Exam! How does it work? Upon activating your course, you will have an initial 36 months of access. You can then renew your subscription as many times as you need to pass your exams—for FREE. Simply click the “renew” option in your student account and you can continue studying your high-quality course materials without losing any of your data and course progress.

Renewal Instructions

  •   Please purchase a renewal using the "Renew" option from the My Account page
  •   To qualify for renewal pricing, course must be renewed before it expires
  •   All renewals are effective from the current expiration date and cannot be deferred
  •   Test information cannot be reset (deleted) with renewal unless eligibility criteria is met (see Help page)