Final answer:
The statement that earnings-affecting transactions may not affect cash is true, as accrual accounting records income and expenses when they are earned or incurred, not necessarily when cash is exchanged.
Step-by-step explanation:
The statement 'transactions that affect earnings do not necessarily affect cash' is true. In accrual accounting, which is commonly used by businesses, income and expenses are recorded when they are earned or incurred, not necessarily when cash changes hands. For example, a company may earn revenue by providing a service, which increases its earnings, but if the customer is given a credit term of 30 days, the actual cash will not be received until later. Similarly, when a company incurs an expense, it will affect earnings, but the cash might not be paid until a future date when the invoice is due.
This distinction is important because the income statement, which reflects earnings, can show a positive net income while the cash flow statement may indicate outflows of cash, or vice versa. This scenario is common in situations where companies are making credit sales or have deferred payment terms for their expenses.