Which items in the balance sheet confirm that Accrual accounting is in use?

Accrual accounting is characterized by recognizing revenues and expenses when they are earned or incurred, regardless of when cash is exchanged. In the context of a balance sheet, two key items that exemplify this principle are accrued revenue and prepaid expenses.

Accrued revenue represents income that has been earned but not yet received in cash, aligning with the accrual accounting principle that recognizes revenues when they are realizable and earned. Conversely, prepaid expenses are payments made in advance for goods or services that will be received in the future. This reflects the matching principle, as expenses are recorded when the related goods or services are utilized, rather than when cash is paid.

These two items effectively illustrate how accrual accounting functions by capturing economic events as they occur rather than relying solely on cash transactions.