What is a Utilities Expense
A business utilities expense is a cost a business pays for using the infrastructure provided by public utilities companies, they can include electricity, natural gas, water, sewage, and telephone services.
The utilities expense is based on the amount used during an accounting period, and is included as part of operating expenses in the income statement of the business.
Depending on the size of the utility bill, a business might maintain separate general ledger accounts for each utility, or combine them into one utilities expense account.
Types of Utilities Expense
Typically, utilities expenses includes costs associated with the following:
Utilities Expense Journal Entry
A business receives an invoice for electricity amounting to 2,000 and records this in the accounting records with the following utilities expense bookkeeping journal.
|Utilities expense – Electricity||2,000|
The journal shown above debits the utilities expense account which represents the cost to the business of using electricity for the period. The credit entry to accounts payable reflects the liability of the business to pay the electricity supplier for the amount of service consumed during the period.
The Accounting Equation
The Accounting Equation, Assets = Liabilities + Owners Equity means that the total assets of the business are always equal to the total liabilities plus the owners equity of the business. This is true at any time and applies to each transaction. For this transaction the Accounting equation is shown in the following table.
In this case the balance sheet liabilities (accounts payable) has been increased by 2,000, and the income statement has a utilities expense of 2,000. The expense reduces the net income, retained earnings, and therefore owners equity in the business.
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About the Author
Chartered accountant Michael Brown is the founder and CEO of Double Entry Bookkeeping. He has worked as an accountant and consultant for more than 25 years and has built financial models for all types of industries. He has been the CFO or controller of both small and medium sized companies and has run small businesses of his own. He has been a manager and an auditor with Deloitte, a big 4 accountancy firm, and holds a degree from Loughborough University.