Final answer:
The accrual basis of accounting justifies the use of accruals and deferrals by recognizing economic events when they occur, not when cash is exchanged. This results in a more accurate financial representation.
Step-by-step explanation:
The accounting concept that justifies the usage of accruals and deferrals is the accrual basis of accounting. This concept recognizes economic events regardless of when cash transactions occur. The key principle here is that economic events are recognized by matching revenues to expenses at the time the transaction occurs, not when payment is made or received. This approach leads to a more accurate portrayal of a company's financial situation.
For example, accruals involve recording revenues and expenses that have been earned or incurred but not yet received or paid. This includes things like rent, utilities, and services provided but for which payment is yet to be made or received.
Deferrals, on the other hand, involve expenses or revenues that have been received or paid in advance and thus are recorded as liabilities or assets until the relevant expenses or revenues are recognized in the period to which they relate.