Utility Expense: Definition, Accounting, Journal Entry, Example, Debit or Credit, Asset or Liability
Following is a summary showing the T-accounts for Printing Plus including adjusting entries. The amount of the accounts payable in this journal entry is the amount that the company recorded previously for the accrued utilities expense. Then debit the depreciation or amortization expense account and credit the accumulated depreciation or amortization account. If this journal entry is not recorded, both total expenses in the income statement and total liabilities in the balance sheet will be understated by 2,500. Using the table provided, for each entry write down the income statement account and balance sheet account used in the adjusting entry in the appropriate column. In the journal entry, Utility Expense has a debit balance of $300.
This means $150 is transferred from the balance sheet (asset) to the income statement (expense). There is still a balance of $250 (400 – 150) in the Supplies account. The balances in the Supplies and Supplies Expense accounts show as follows.
- According to the accrual concept of accounting, expenses are recognized when incurred regardless of when paid.
- A compound entry is when there is more than one account listed under the debit and/or credit column of a journal entry (as seen in the following).
- It means there has been a revaluation gain worth $500,000 on the land.
- Accounts Receivable increases (debit) for $1,500 because the customer has not yet paid for services completed.
- This is posted to the Accounts Payable T-account on the credit side.
The adjusting entry for prepaid expense will depend upon the initial journal entry, whether it was recorded using the asset method or expense method. Each entry has one income statement account and one balance sheet account, and cash does not appear in either of the adjusting entries. Recall that unearned revenue represents a customer’s advanced payment for a product or service that has yet to be provided by the company. Since the company has not yet provided the product or service, it cannot recognize the customer’s payment as revenue. At the end of a period, the company will review the account to see if any of the unearned revenue has been earned. If so, this amount will be recorded as revenue in the current period.
What are adjusting entries?
This is posted to the Utility Expense T-account on the debit side. You will notice that the transactions from January 3 and January 9 are listed already in this T-account. The next transaction figure of $300 is added on the credit side. In the journal entry, Salaries Expense has a debit of $1,500.
- This shows where the account stands after each transaction, as well as the final balance in the account.
- Generally, adjusting journal entries are made for accruals and deferrals, as well as estimates.
- Journal entries are recorded when an activity or event occurs that triggers the entry.
- The adjusting entry is made when the goods or services are actually consumed, which recognizes the expense and the consumption of the asset.
To find the account balance, you must find the difference between the sum of all figures on the side that increases and the sum of all figures on the side that decreases. Companies must record utility expenses as operating expenses. Practically, companies allocate their utilities to different departments. In some areas, the classification for these expenses may vary. Therefore, companies may need to assign utility expenses to those areas.
3 Record and Post the Common Types of Adjusting Entries
The company may also enter into a lease agreement that requires several months, or years, of rent in advance. Each month that passes, the company needs to record rent used for the month. Adjusting entries requires updates to specific account types at the end of the period. Not all accounts require updates, only those not naturally triggered by an original source document.
What is the journal entry for Utility Expense?
While the number of entries might differ, the recording process does not. For example, Colfax might purchase food items in one large quantity at the beginning of each month, payable by the end of the month. Therefore, it might only have a few accounts payable and inventory journal entries each month.
Unit 4: Completion of the Accounting Cycle
Recall from Analyzing and Recording Transactions that prepaid expenses (prepayments) are assets for which advanced payment has occurred, before the company can benefit from use. As soon as the asset has provided benefit to the company, the value of the asset used is transferred from the balance sheet to the income statement as an expense. Some common examples of prepaid expenses are supplies, depreciation, insurance, and rent. This practice journal entries for inventory transactions 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. The company makes this journal entry to recognize the incurred expense as well as the obligation existed at the end of the period. Likewise, this journal entry increases both the expense (debit) in the income statement and the liability (credit) in the balance sheet.
You will notice there is already a debit balance in this account from the purchase of supplies on January 30. The $100 is deducted from $500 to get a final debit balance of $400. In this journal entry, the company recognizes (debit) $2,500 as accrued expense since the employees have already worked for five days but have not been paid for yet. On the other hand, the $2,500 of wages payable (credit) is the liability that the company owes to its employees for the five days of works. This journal entry does not affect the income statement as the company has already recognized the expense at the last period-end adjusting entry.
There are debit and credit columns, storing the financial figures for each transaction, and a balance column that keeps a running total of the balance in the account after every transaction. Notice that for this entry, the rules for recording journal entries have been followed. Once you have journalized all of your adjusting entries, the next step is posting the entries to your ledger. Posting adjusting entries is no different than posting the regular daily journal entries.