This paper introduces a new measure of accrual quality, which reflects the extent to which accruals align with cash flow realizations. Accruals help resolve timing issues in cash flows but involve estimation errors that reduce their quality. The authors develop a model of working capital accruals where accruals correct timing problems at the cost of including estimation errors. They derive an empirical measure of accrual quality as the residual from firm-specific regressions of changes in working capital on past, present, and future operating cash flows. This residual captures estimation errors and is used to assess accrual quality. The study finds that accrual quality is negatively related to the magnitude of total accruals, the length of the operating cycle, and the standard deviation of sales, cash flows, and earnings, while it is positively related to firm size. Additionally, accrual quality is strongly positively related to earnings persistence. These findings suggest that firms with higher accrual quality have more persistent earnings, indicating that accruals provide a more accurate picture of economic performance. The paper also explores the relationship between accrual quality and earnings persistence. It finds a strong negative relationship between the standard deviation of residuals (a measure of accrual quality) and earnings persistence. Firms with lower accrual quality have lower earnings persistence, as their accruals do not align well with cash flow realizations. The study reconciles findings from Dechow (1994) and Sloan (1996), showing that high levels of accruals can indicate both improved earnings relative to cash flows and lower earnings quality due to estimation errors. The authors conclude that their measure of accrual quality provides a useful tool for assessing the quality of earnings and understanding the economic determinants of accrual quality. The results highlight the importance of estimation errors in reducing the quality of accruals and earnings, and suggest that firms with higher accrual quality have more persistent earnings. The study contributes to the literature by formalizing the intuition that estimation errors reduce the quality of accruals and earnings, and by developing a practical measure of accrual quality.This paper introduces a new measure of accrual quality, which reflects the extent to which accruals align with cash flow realizations. Accruals help resolve timing issues in cash flows but involve estimation errors that reduce their quality. The authors develop a model of working capital accruals where accruals correct timing problems at the cost of including estimation errors. They derive an empirical measure of accrual quality as the residual from firm-specific regressions of changes in working capital on past, present, and future operating cash flows. This residual captures estimation errors and is used to assess accrual quality. The study finds that accrual quality is negatively related to the magnitude of total accruals, the length of the operating cycle, and the standard deviation of sales, cash flows, and earnings, while it is positively related to firm size. Additionally, accrual quality is strongly positively related to earnings persistence. These findings suggest that firms with higher accrual quality have more persistent earnings, indicating that accruals provide a more accurate picture of economic performance. The paper also explores the relationship between accrual quality and earnings persistence. It finds a strong negative relationship between the standard deviation of residuals (a measure of accrual quality) and earnings persistence. Firms with lower accrual quality have lower earnings persistence, as their accruals do not align well with cash flow realizations. The study reconciles findings from Dechow (1994) and Sloan (1996), showing that high levels of accruals can indicate both improved earnings relative to cash flows and lower earnings quality due to estimation errors. The authors conclude that their measure of accrual quality provides a useful tool for assessing the quality of earnings and understanding the economic determinants of accrual quality. The results highlight the importance of estimation errors in reducing the quality of accruals and earnings, and suggest that firms with higher accrual quality have more persistent earnings. The study contributes to the literature by formalizing the intuition that estimation errors reduce the quality of accruals and earnings, and by developing a practical measure of accrual quality.