Utilities Expense Journal Entry
Overview
In accounting, utilities expense is the cost for using the utilities during the period. Likewise, under the accrual basis of accounting, the company needs to make the utilities expense journal entry at the period end adjusting entry regardless it has received the invoice for the current period utility usage or not.
If the company has not received the utility invoice from the supplier at the period end adjusting, it can use the previous period invoice to make the journal entry for utilities expense if the discrepancy from the current period is estimated to be immaterial, based on past experiences. This practice is common for the utilities expense as many companies usually only receive the current month invoice of the utility usage in a few days after the period end adjusting entry.
Utilities expense journal entry without current period invoice
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.
| Account | Debit | Credit |
|---|---|---|
| Utilities expense | 000 | |
| Accounts payable | 000 |
When the company only receives the invoice of utility use at the beginning of the next period, it usually uses the amount in the last period utility invoice to record the utilities expense in the above journal entry.
Only later, when the company receives the invoice from the utility supplier, does it record the actual amount in the accounting record with the payment made to the utility supplier.
Payment of utilities expense with reversing entry
When the company uses the previous utility invoice to record the current period utilities expense, it usually reverses the journal entry of utilities expense at the time of payment after receiving the actual invoice.
Likewise, the company can make the payment utilities expense journal entry with the reversing entry as below:
Reversing old entry
| Account | Debit | Credit |
|---|---|---|
| Accounts payable | 000 | |
| Utilities expense | 000 |
Payment of utilities expense
| Account | Debit | Credit |
|---|---|---|
| Utilities expense | 000 | |
| Cash | 000 |
Payment of utilities expense without reversing entry
Alternatively, the company can choose to make only one journal entry at the time of payment of utilities expense without the reversing entry. Though, in this case, it needs to determine the difference of amount between the recorded expense/accounts payable and cash payment. And then it can record the discrepancy in the debit or credit side of uttilites expense account.
Likewise, the company can make the journal entry for the payment of utilities expense without reversing entry as below:
If the recorded expense or accounts payable is smaller than the cash payment
| Account | Debit | Credit |
|---|---|---|
| Accounts payable | 000 | |
| Utilities expense | 000 | |
| Cash | 000 |
If the recorded expense or accounts payable is bigger than the cash payment
| Account | Debit | Credit |
|---|---|---|
| Accounts payable | 000 | |
| Utilities expense | 000 | |
| Cash | 000 |
The amount of the accounts payable in this journal entry is the amount that the company recorded previously for the accrued utilities expense.
In practice, the company usually uses the payment journal entry with the reversing entry as it is simpler and easier. The company only needs to reverse the old entry and post the new expense following the new invoice. It doesn’t need to calculate the difference between the recorded expense/accounts payable and the cash payment. And it also doesn’t need to determine whether the recorded expense/accounts payable is bigger or smaller than the cash payment to decide if they need to debit or credit the utilities expense account.
Utilities expense example
For example, in the June 30 adjusting entry, the company ABC needs to make the utilities expense journal entry for the electricity usage during the period of June. However, the company ABC has not received the electricity invoice of June yet. It only has the electricity invoice of May with the amount of $4,800.
In this case, in the June 30 adjusting entry, the company ABC can make the utilities expense journal entry for the electricity usage with the amount in the invoice of May as below:
| Account | Debit | Credit |
|---|---|---|
| Utilities expense – electricity | 4,800 | |
| Accounts payable | 4,800 |
Assuming the company ABC receives the electricity invoice of June in the first week of July amounting to $5,000, it can make the journal entry for the payment of utitilies expense of electricity as below:
Payment of electricity expense with reversing entry of May invoice
| Account | Debit | Credit |
|---|---|---|
| Accounts payable | 4,800 | |
| Utilities expense – electricity | 4,800 |
| Account | Debit | Credit |
|---|---|---|
| Utilities expense – electricity | 5,000 | |
| Cash | 5,000 |
Payment of electricity expense without reversing entry
Alternatively, the company ABC can also make the payment of utilities expense of electricity without reversing entry as below:
| Account | Debit | Credit |
|---|---|---|
| Accounts payable | 4,800 | |
| Utilities expense – electricity | 200 | |
| Cash | 5,000 |
As the recorded utilities expense of electricity was only $4,800 previously due to the company ABC follows the May invoice, it needs to add $200 more in the utilities expense account. Since the payment of electricity is assuming to be in the first week of July, the utilities expense in June was understated by $200. However, it is immaterial as the amount of $200 is considered to be insignificant in this case.
Utilities expense journal entry with current period invoice
If the company receives the current period invoice of utility usage during the period, it can simply make utilities expense journal entry with the amount in the invoice as below:
| Account | Debit | Credit |
|---|---|---|
| Utilities expense | 000 | |
| Accounts payable | 000 |
And when it makes the payment for utilities expense, it can make the journal entry for the payment of utilities by simply debiting the recorded accounts payable and crediting the cash account as below:
| Account | Debit | Credit |
|---|---|---|
| Accounts payable | 000 | |
| Cash | 000 |
Example
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. The company ABC makes the payment for this invoice on July 5.
In this case, the company ABC can make the utilities expense journal entry for the $2,000 on June 30 as below:
| Account | Debit | Credit |
|---|---|---|
| Utilities expense – water | 2,000 | |
| Accounts payable | 2,000 |
After that, when the company ABC makes the payment for utilities expense of water usage of $2,000 on July 5, it can make the journal entry as below:
| Account | Debit | Credit |
|---|---|---|
| Accounts payable | 2,000 | |
| Cash | 2,000 |