Which of the following would affect to quality of earnings? a. Alternative accounting methods. ...

Question:

Which of the following would affect to quality of earnings?

a. Alternative accounting methods.

b. Pro forma income.

c. Improper recognition.

d. All of these answer choices are correct

Financial Accounting

Financial accounting is one of the branches of accounting. It is used to prepare and present financial reports. The reports that are prepared are used by various stakeholders to make relevant business decisions. Financial accounting applies accepted accounting standards in the preparation of reports of finance.

Answer and Explanation:

Answer: Option d

When alternative accounting methods are employed it can affect the quality of earnings as income would be accounted for differently. Also, if revenue is properly recognized, the profit may be overstated or understated. There is a need for an organization to use the correct procedure for revenue recognition so that they can ensure the quality of earning is not negatively impacted. Pro forma income refers to a projected income. Therefore, if pro forma income is used to establish the profitability of a company it may affect the quality of earnings.


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Role of Financial Accounting in Management & Decision Making

from Accounting 201: Intermediate Accounting I

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