Utilities payable journal entry is to record the liability incurred towards the consumption of the daily essentials such as water, power, gas, etc.
These commodities are fundamental necessities for any household or business.
Accounting Prerequisites
Recording the journal entry involves identifying the GL accounts that are the primary components of a transaction.
After that, we need to understand the basic rules of accounting. This involves identifying which accounts are to be debited vs. credited when recording an entry in the books of accounts.
Refer to the Golden Rules of Accounting article to thrive further on this.
We have a summary version of these accounting rules below for quick reference.
- The GL Accounts of Receiver and Givers go to debit and credit in case of liability account
- Debit what comes in and credit what goes out in the case of asset accounts
- The nominal account rule requires debiting all the expenses and crediting all incomes
Table of contents
- Accounting Prerequisites
- Accounting Analysis
- Utilities Payable Journal entry
- What’s the entry on Utility payment?
- How to record the penal charges relating to utilities?
- How to record such a discount received for Utility expenses?
- Will there be any change in payment entry for different modes?
- FAQs of Utilities payable Journal entry
- Key takeaways
Accounting Analysis
- The GL Accounts here are Utility Expense and Utility Payable.
- Utility expense is a nominal account. It falls on the debit side of the journal entry
- We must credit the utility payable per the liability account accounting rules.
Utilities Payable Journal entry
Now that we have a good knowledge of the accounting prerequisite’s and rules, we will move on to recording this utility payable transaction.
What’s the entry on Utility payment?
Recording the Liability is just the beginning of the accounting for this transaction. The next critical step is to record the payment entry. Payment requires use of either Cash or a Bank Account. Per the asset account rule, we need to credit anything that goes out of the business.
The utility department can levy fines or interest on overdue payments. Utility services are chargeable based on usage. If there are any outstanding payments, we need to pay them as and when due to avoid termination of utility services.
How to record the penal charges relating to utilities?
The accounting treatment of penal charges is similar to that of utility expenses. However, considering the difference in nature, we need to record such transactions through an account other than a utility expense account.
Naming such GL accounts is a flexible rule. It can vary as per the needs. We need to name it in such a way that it should be clear and unambiguous. In other words, the description of the GL shall not cause any deviation for its intended purpose.
For instance, we shouldn’t name the goods transport charges as just carriage. Instead, we shall name the charges incurred for transport of goods into the entity warehouse as carriage inwards while the transport charges relating to the sales as carriage outwards. The GL name shall reflect its nature accurately.
Some of the ways to name such Penal charges GL Accounts are
- Interest on Late utility payments
- Penal Charges
- Late Charges
We can use any of such GL Accounts to record the transaction.
Let’s record the penal charges journal entry
The distinction between the Penal charges and Penal Utility Charges makes is significant. We are specific in the latter name and made it clear that its relating to the utility expenses.
The Payment entry of these penal charges is similar to that of recording the utility expense payment.
How to record such a discount received for Utility expenses?
Discounts can be received for early payment. These discounts are in the nature of gain and falls under the last category of the above rules. So, we need to credit the discount received GL account in the journal entry.
In other words, the debit side will not change. However, we need to split the credit side between the bank account and the discount account. So, the bank payment amount decreases to the extent of the discount.
Recording the discount received for utility expenses.
Discount received GL account is recorded only as part of payment entry. But not while recording a utility liability entry.
Will there be any change in payment entry for different modes?
There is no significant change.
Description of the GL changes with the mode of payment.
Different modes of payment are Cash, wire transfer, check or online transfer. Per industry practice, we record the wire transfers, checks, or online transfers through a Bank GL Account, and Physical cash payments are through a Cash GL Account.
FAQs of Utilities payable Journal entry
What is utility expense?
Utility expenses are the costs incurred towards the facilities such as water, electricity, and gas. These are critical commodities for any business or household. Each of the transaction qualifies to be recorded in the books of accounts irrespective of the quantitative value.
Is utility expense on the balance sheet?
All expenses, losses, gains, and income fall under the nominal account category. They are all included in the income statement as running costs for a particular period and will not yield any benefits after the current year. However, the utility payable falls under liability category which is part of balance sheet. Considering their nature and the liability is often cleared within 12 months, we group it under current liability.
Are utility bills an expense or a liability?
Utility bills are an expense. Any expense will be associated with a liability to honor the payment. The payables are recorded as current liability. In other words, utility payable is the current liability account for these expenses.
Can we have a list of utility bills?
Examples of utility bills are
- Water
- Electricity
- Telephone
- Internet charges
- Gas
Key takeaways
Utility Payable Journal entry is to accrue the utility expense liability in the books. We record the transaction by debiting the utility expense and crediting the utility liability account. There can be some variability in accounting for these transactions if any discounts are received, penal charges, and modes of payment. Considering the nature, we will debit or credit these accounts. Considering these fall under the nominal account category, we will debit the penal charges and credit all the discounts received while recording the journal entries.