Final answer:
The statement is true; under the accrual method, a taxpayer can only claim a deduction when all events establishing the liability have occurred and the amount can be reasonably estimated. This principle contrasts with the cash basis method and helps provide a more accurate picture of financial standing.
Step-by-step explanation:
The assertion that under the accrual method, a deduction cannot be claimed until (1) all of the events have occurred to create the taxpayer's liability and (2) the amount of the liability can be determined with reasonable accuracy is indeed true. This accounting practice is a fundamental principle of the accrual accounting method, where income and expenses are recorded when they are earned or incurred, not necessarily when cash is received or paid out. This means that for a taxpayer to claim a deduction, the event that incurs the expense must have happened, establishing the taxpayer's liability, and the exact or a reasonably accurate amount of the expense must be known.
This is in contrast with the cash basis method of accounting, where income and expenses are recorded only when cash is actually exchanged. In the accrual method, the economic event triggering the transaction is significant rather than the actual cash transaction. This approach provides a more accurate financial picture of a company's financial position.
For example, if a business incurs an expense for services rendered in December but does not pay the invoice until January, under the accrual method, the expense is recorded in December, the moment the liability is established and the service is provided, assuming the cost can be reasonably estimated. The same principle applies to income; it is reported in the period in which the service is performed or the product is delivered, rather than when payment is received.