Under the cash basis of accounting, the amount recorded relates to the cash paid within the period for the indicated items. Utilities Expense Under the Cash Basis of Accounting
Since 25/30th of the bill applies to the current month, which is $1,667, the controller of ABC concludes that the portion of the invoice applicable to the preceding month is immaterial, and charges the entire amount to the current month. The portion of a utility invoice applicable to the current period may be so large that any residual balance applying to a different period is immaterial, and so can be charged to the current period.įor 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. Under the accrual basis of accounting, the amount recorded as utilities expense relates to the actual consumption of the indicated items in a period, even if the supplier has not yet issued an invoice (invoices are frequently delayed for utilities). Utilities Expense Under the Accrual Basis of Accounting If so, the business records this deposit as an asset on its balance sheet, rather than charging it to expense. If not all units produced are sold in the period, this means that some of the utilities expense will be recorded as part of the inventory asset, rather than being immediately charged to expense.Ī utilities provider may require a deposit from a business prior to providing service.
As such, the expense is accumulated in a cost pool and then allocated to the units produced in the period when the expense was incurred. The utilities expense incurred by a company's manufacturing operations is considered part of its factory overhead.
This expense is considered a mixed cost, since there is usually a fixed fee component plus a variable charge that is based on actual usage. The category is sometimes also associated with expenditures for ongoing telephone and internet service. Utilities expense is the cost consumed in a reporting period related to electricity, heat, sewer, and water expenditures.