Final answer:
The statement about the accruals concept being related to cash transactions is FALSE. In fact, the accruals concept requires that economic events are recognized when they occur, regardless of when cash is received or paid.
Step-by-step explanation:
The accruals concept, in accounting, is a fundamental principle that dictates how financial events are recorded. The statement "the accruals concept is the concept which requires that transactions/events are recognised when cash is received or paid for them" is FALSE. The accruals concept actually requires the recognition of transactions and events when they occur, not when the cash is actually exchanged. This means that revenues and expenses are recorded when they are earned or incurred, regardless of when the cash is received or paid.
This method contrasts with the cash basis of accounting, where transactions are only recorded when cash changes hands. Therefore, if a company sells a product or provides a service, the revenue from that transaction would be recognized at the time of the sale or service, even if the customer has not yet paid. Similarly, expenses are recorded when the company incurs the liability to pay, not necessarily when payment is made.
The purpose of the accrual accounting is to provide a more accurate picture of a company's financial position and operating results during a particular period. This is crucial for stakeholders like investors, creditors, and management to make informed decisions. It allows the creation of financial statements that reflect the economic activities of a company during a given accounting period, independent of cash transactions.
For example, a company might perform a service in December but not receive payment until January. Under accrual accounting, the revenue would be recorded in December when the service was completed. Conversely, if the company receives an advance payment for services to be performed in the future, the cash receipt is recorded as a liability until the service is actually performed and the revenue is earned.