26, Aug | 12:09 pm
Utilities expenses are defined as the cost incurred by using services such as electricity, water, heating, waste disposal, and sewage over a given period of time. Utilities expenses can also be classified as selling or administrative and allocated to different departments.
Are utilities expenses assets or liabilities? Find out more here…
Utility bill data
A utility bill for a retailer or service provider is an expense. Under the accrual basis of accounting, this expense will be recorded for the period indicated by the meter reading dates.
The utility bill for a manufacturer will be assigned or allocated according to the units produced for direct or indirect manufacturing operations. These figures will then be recorded within the inventory and the cost of goods sold.
The difference between cash basis and accrual basis accounting
To understand the classifications of assets and liabilities, it’s helpful to know how the accounting system works. Cash basis accounting uses a record for the use of utilities for each period based on the amount of cash that has been paid, this sometimes means that the expense is recorded in a later period.
The accrual basis recognises utilities expenses differently as the expenses are recorded as they are used, not when they are paid. This means that revenues are reported on the income statement when they’re earned and what expenses were incurred.
Assets definition
Assets are resources owned by the business that provide probable future benefits. The main sources of assets are cash, accounts receivable, closing stock, plant and machinery, and office equipment for example.
Liabilities definition
Liabilities are debts payable by the business to others. These can include accounts payable, accrued expenses, bank loans, and unearned commission. They are classed as current liabilities that are paid out of the current accounting period or long-term liabilities that have more than a year, for example, the purchase of land or buildings from a loan.
Presentation of utilities payable
Utilities payable is the amount owed to suppliers for services provided such as gas, electricity, water etc. This is considered a current liability as the balance owed is typically payable in less than one year.
The initial entry to record a current liability is a credit to the most applicable current liability account and a debit to an expense or asset account.
When utilities expenses aren’t paid they become current liabilities for businesses using these facilities and become current assets for suppliers or utility companies that supply the business.
For example, when utilities expenses aren’t paid at the end of the accounting period, then these become utilities payable and are classed as current liabilities. These are shown in the business’s balance sheet, which shows the financial performance and position of the business.
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