Adjusting Entry for Accrued Expenses

It brings about a decrease in accounts such as liabilities, equity, and revenue. Credit on the other hand is an accounting transaction that brings about an increase in liability accounts such as loans payable, equity accounts such as capital, and revenue accounts such as sales. It brings about a decrease in asset accounts and expense accounts (utilities expense inclusive). The company can make the utilities expense journal entry by debiting the utilities expense account and crediting the accounts payable at the period-end adjusting entry.

It is important to know when to debit as well as when to credit an account, just as we want to know when to debit or credit utilities expense. The cash basis on the other hand will record it when the payment takes place. In other words, the total amount recorded for the use of utilities for each period is based on the amount of cash that the business/company has paid for the said utilities during the period covered. By implication, the cash basis may mean that the expense is recorded in a later period. You will notice that the transactions from January 3, January 9, January 12, and January 14 are listed already in this T-account.

The increase over the years 2019 to 2023 is 1,764 percent,” said Mariya V. Coleman in testimony to the Utah Public Service Commission, which ultimately decides what Utah ratepayers will have to shoulder. Coleman is Vice President of Corporate Insurance and Claims for Buffett’s Berkshire Hathaway Energy Company, parent of PacifiCorp and Rocky Mountain. In this case, PacifiCorp saw its annual liability insurance cost go from $10 million to $125 million.

Utilities Expense Journal Entry

Once all journal entries have been posted to T-accounts, we can check to make sure the accounting equation remains balanced. A summary showing the T-accounts for Printing Plus is presented in Figure 3.10. In the journal entry, Accounts https://accountingcoaching.online/ Receivable has a debit of $5,500. This is posted to the Accounts Receivable T-account on the debit side. This is posted to the Service Revenue T-account on the credit side. This is posted to the Equipment T-account on the debit side.

  • He has been a manager and an auditor with Deloitte, a big 4 accountancy firm, and holds a degree from Loughborough University.
  • However, some corporations use a temporary clearing account for dividends declared (let’s use “Dividends”).
  • It is important to know when to debit as well as when to credit an account, just as we want to know when to debit or credit utilities expense.
  • As can be seen the journal shown above debits the utilities expense account which represents the cost to the business of using electricity for the period.

If this is the case, then this temporary dividends account needs to be closed at the end of the period to the capital account, Retained Earnings. This is closed by doing the opposite – debit the capital account (decreasing the capital balance) and credit Income Summary. To further illustrate the analysis of transactions and their effects on the basic accounting equation, we will analyze the activities of Metro Courier, Inc., a fictitious corporation. Refer to the chart of accounts illustrated in the previous section. In essence, Utilities expenses are not always listed as such.

AccountingTools

At the end of the month, BookNook receives separate bills for these utilities. The accounting department would then make journal entries to reflect these expenses. The utility companies
(electricity, water, etc.) issue their bills (invoices) using the billing cycle
from the 21st of the current month to the 20th of the following month. Thus, the
current utility bills will not be received until the end of following month. It is to be noted that not all companies are required to go
through this process of accruing for expenses.

Payment of utilities expense with reversing entry

Under the cash basis, expenses are recorded based on the payments made. In business organizations, utility expenses encompass all the costs that contribute to sales, such as sales commission and manufacturing expenses. Now, the most common accounting method for utility expenses is the accrual method. However, there is another means of accounting – the cash basis method.

The public utility expense considers the provision of basic facilities necessary for society. Over 1.8 million professionals use CFI to learn accounting, financial analysis, modeling and more. Start with a free account to explore 20+ always-free courses and hundreds of finance templates and cheat sheets.

What are Closing Entries?

This implies that the expenses become a part of a cost pool which is then divided up in accordance with the units that are produced during the billing period. The expenses that are tied to the units that are not sold are usually listed https://accounting-services.net/ as inventory assets, and not immediately listed as an expense. In the adjusting entry above, Utilities Expense is debited to recognize the expense and Utilities Payable to record a liability since the amount is yet to be paid.

Another key element to understanding the general ledger, and the third step in the accounting cycle, is how to calculate balances in ledger accounts. Let’s assume that a retailer begins operations on December 1 and it uses natural gas for heating and it uses electricity for lighting and to operate its computers and equipment. Let’s assume that the utility reads the meters on the last day https://quickbooks-payroll.org/ of every month and prepares the utility bills based on the meters’ readings. The retailer receives its first utility bills on January 8th and must remit the amount by February 2. For example, ABC International receives a water bill from the local water company that covers the period from the 26th day of the preceding month to the 25th day of the current month, in the amount of $2,000.

Metro Corporation earned a total of $10,000 in service revenue from clients who will pay in 30 days. Understanding utilities expense is crucial for cost control and operational efficiency. Businesses often explore ways to reduce this expense through measures like energy conservation, negotiating better rates with providers, or switching to renewable energy sources, among other strategies. One is
when a company can wait to receive all utility bills and the other one is when
a company can’t wait to get utility bills to close the month. Let’s look at the journal entries for Printing Plus and post each of those entries to their respective T-accounts. For example, on June 30, the company ABC receives the invoice for the water usage during the period from 30 May to June 29 amounting to $2,000.

Checking to make sure the final balance figure is correct; one can review the figures in the debit and credit columns. In the debit column for this cash account, we see that the total is $32,300 (20,000 + 4,000 + 2,800 + 5,500). The credit column totals $7,500 (300 + 100 + 3,500 + 3,600). The difference between the debit and credit totals is $24,800 (32,300 – 7,500). Having a debit balance in the Cash account is the normal balance for that account.

Income and expenses are closed to a temporary clearing account, usually Income Summary. Afterwards, withdrawal or dividend accounts are also closed to the capital account. Notice that the balance of the Income Summary account is actually the net income for the period. Remember that net income is equal to all income minus all expenses. To close that, we debit Service Revenue for the full amount and credit Income Summary for the same.

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