Are Utility Bills Reported On Income Statement?

Under accrual accounting, the amount for utilities utilized during the period of the income statement should be reported on the income statement. The cost of gas and electricity used between the meter reading dates on the utility bill is shown on the utility bill. If the meters are read on the final day of the month, for example, the utility bills you receive in early July will reveal the cost of the utilities you used in June. This is the expense that your business should show on its June income statement. As of June 30, the amount of utility bills with June 30 meter reading dates should be represented as a current liability (accounts payable).

It gets a little more tricky when utility bills are based on monthly meter readings rather than the last day of the month. If the meters are read on the 20th of every month, for example, the utility bill received at the end of June will reflect the cost of utilities consumed between May 21 and June 20. As of June 20th, the amount of this bill is also the amount of responsibility. Because the balance sheet is dated June 30th (and the income statement is for the entire month of June), an adjustment entry for the additional obligation for the utilities consumed from June 20 to June 30 should be made.

You must report the expense for the 30 or 31 days of the calendar month that the utilities were used in order to have the correct amount on the income statement. You must indicate the cost of the utilities utilized through the last day of the month that have not yet been paid in order to have the correct liability amount reported on the balance sheet. The company distributes power and gas on a daily basis, but only checks the meters once a month, which adds to the complexity. As a result, even if you have paid your most recent utility payment, you will always owe the provider some money. In brief, you’ll need to make an adjusting entry in accrual accounting to make the financial statements accurate.

You made an excellent point. You should speak with your accountant about this.

Is it better to pay for utilities on the income statement or the balance sheet?

As of the balance sheet date, a current liabilities account reports the amounts owed to utility companies for electricity, gas, water, and phone. If the company has not received a utility bill, it will have to estimate the amount owed for the service it has utilized up until the balance sheet date. The amounts owed are frequently included in Accounts Payments rather than having a separate account for utilities payable.

In accounting, how do you record utility bills?

You’ll credit accounts payable and debit the utilities expense account. Accounts payable and cash will be affected when the bill or invoice is paid. It’s the debit side of the transaction because you’re lowering your accounts payable liability. You’re going to credit cash because you’re diminishing the cash asset.

A utility bill is a form of expense.

The cost of power, heat, sewer, and water during a reporting period is referred to as utilities expense. Expenses for ongoing telephone and internet service are sometimes included in this category. Because there is frequently a fixed fee component as well as a variable price based on actual usage, this item is classified as a mixed cost.

Are utility costs recorded on a balance sheet?

Assume that a merchant opens its doors on December 1 and uses natural gas for heating and electricity for lighting and computer and equipment operation. Assume the utility scans the meters on the last day of each month and generates utility bills based on the readings. On January 8th, the merchant receives its first utility bills, which must be paid by February 2nd.

The retailer’s income statement for the month of December must include the cost of the gas and electricity it utilized during that month, according to the accrual basis of accounting. The retailer must declare the amounts it owes to the utilities as of December 31 on its December 31 balance sheet.

If the retailer’s financial statements are prepared without the utility bills for December’s usage, the retailer will record an accrual adjustment entry that debits Utilities Expense and credits Accrued Utilities Payable for the estimated amount.

Utility bills for gas and electricity consumed in December are an expense and a liability as of December 31 in our case. The liability is removed after the utility bills are paid.

Is it an expense or a liability to pay for utilities?

The terms “utilities expense” and “utilities payable” are not interchangeable. The expense is the total cost of utilities for the year to date or for a certain period, whereas the payable is the amount of utility bills that have not been paid. As a result, the utilities expense typically exceeds the utilities payment balance.

On a balance sheet, where do utilities go?

Customer debt, contrary to popular belief, does not appear in a utility’s financial statements in the same manner that other types of debt do. Unpaid bills, in reality, are not classified like debt at all, but rather as an asset, because the utility expects to be paid part of the money owed to them at some point. Customer debt is thus recorded as accounts receivable, an asset rather than a liability, in a utility’s balance sheet. (If you want to learn more about how to assess a utility’s liabilities, check out our blog post on utility debt risk.)

Financial Statement Sleuthing 101

Let’s say you want to figure out what’s up with a utility’s delinquent payments in light of all of this. Returning to Western Pennsylvania, it turns out that Duquesne Light is the primary power distribution firm in Pittsburgh, so we may begin by reviewing Duquesne Light’s financial accounts. Unfortunately, Duquesne was formerly a publicly traded firm, but it is currently controlled by Macquarie Group, an Australian corporation. Unfortunately, while the Macquarie Group’s financial papers are out to the public, the corporation is so large that it’s difficult to separate anything relevant to Duquesne.

As a result, a comprehensive examination of Duquesne’s financial accounts is impossible. Continuing our investigation, we may check into a different, stand-alone utility whose financial statements are available to the public to get a feel of how consumer debt is handled. In North Carolina, Duke Energy is a good example. I began my search on Duke’s investor relations portal, which provides quick access to a range of documents. It may be tempting to open the company’s 2014 Annual Report (the most recent report), but resist! Annual reports are great for photographs of happy people and young children, but we want the real figures. As a result, skip the fancy photos and jump to Duke Energy’s 2014 Form 10-K. When we want to discover more about a company’s finances, we should start here.

Here are a few pointers on how to navigate a 10-K, which in Duke Energy’s instance is only 275 pages long:

  • The first step is to skip through the first few pages and head right to the table of contents. Is it possible to find what you’re looking for? Get right to the point.
  • Use the Find feature to search the document for those terms if you’re looking for anything specific that isn’t listed in the table of contents but has a unique word or two to describe it (only use this technique if your search terms yield fewer than 20 results or so).
  • Begin with the first item, “Business.” What exactly does this business do? What is their source of income?
  • Continue to Item 1A, “Risk Factors.” This section offers a fascinating list of all the numerous things that could have an impact on the utility’s financial results, either directly or indirectly, via altering operations.
  • Take a look at the part titled “Financial Statements.” This is not to be confused with the “Selected Financial Data” part, which is less thorough and lightweight. The Financial Statements Section of Duke Energy’s 10-K includes sections for the entire company as well as each business unit. If you’re interested in a single business unit, look at its financial statements; otherwise, start with the company’s overall financial statements (“Duke Energy Corporation”).
  • Start with the Consolidated Balance Sheets and the Consolidated Statement of Cash Flows, regardless of which set of Financial Statements you’re looking at. If necessary, branch out to other statements.

I knew I was looking for information about unpaid customer bills in this case, but a search of the 10-K for “unpaid” yielded nothing. However, a second search for “unbilled” yielded several results, including this portion on page 123:

When a service or a product is delivered, revenues from electricity and gas sales are recognized. Unbilled revenues are calculated by multiplying projected amounts of energy delivered but not yet billed by customer billing rates. Seasonality, weather, customer consumption patterns, customer mix, average pricing in effect for customer classes, and meter reading schedules can all affect unbilled income dramatically from one period to the next. On the Consolidated Balance Sheets, unbilled revenues are reflected in Receivables and Restricted receivables of variable interest entities…. In addition, Duke Energy Ohio and Duke Energy Indiana sell nearly all of their retail accounts receivable, including unbilled revenue receivables, to an affiliate, Cinergy Receivables Company, LLC (CRC), on a revolving basis and account for the transfers of receivables as sales. As a result, the receivables sold are not shown on Duke Energy Ohio and Duke Energy Indiana’s Consolidated Balance Sheets.

Unpaid invoices are not viewed the same as debt, according to this wording, and instead appear on the asset side of the balance sheet, under accounts receivable. This is because unpaid bills represent money that the firm hasn’t yet received but expects to, and Duke has already “given away” the electricity for which the bills were issued. Duke Energy transfers the asset of those receivables to a collections company (Cinergy Receivables Company) in Ohio and Indiana, and Cinergy pays Duke Energy a fee for the right to collect on those accounts. Cinergy is likely to pay a fraction of the actual amount of overdue invoices because they know they won’t be able to collect on all of them, and Duke records the money as sales revenue.

So, while unpaid bills are unquestionably distinct from utility debt, how do the two compare in terms of magnitude? To put these figures in context, Duke Energy Carolinas has $776 million in accounts receivable (not all of which is delinquent bills), with $33.8 billion in total assets and $7.6 billion in long-term debt. As a result, delinquent bills are a drop in the bucket.

Understanding private sector financial accounts is crucial for a lot more than just addressing queries about overdue debts. To fill finance or knowledge deficiencies, the public sector now frequently partners with the private sector (see the EFC’s current initiative on public-private partnerships and alternative service delivery models for water utilities). Even if you’re not a millionaire stockholder or run a hedge fund, spending the time to review a potential partner’s financial documents might be a good investment.

What’s on a sample income statement?

All expenses incurred in order to generate typical operating revenue from the business’s principal activity. Cost of goods sold (COGS), selling, general and administrative expenses (SG&A), depreciation or amortization, and research and development (R&D) expenses are all examples of these charges. Employee salary, sales commissions, and fees for utilities like energy and transportation are common items on the list.

In accounting, what is a utility expense?

The cost of using utilities such as power, water, waste disposal, heating, and sewage is known as utilities costs. Expenses are incurred throughout the reporting period, computed and accumulated for, or payment is made.

In accounting, what are utilities?

Water, natural gas, electricity, and sewage are all expenses that are recorded in the utilities expense category.

These costs are important for the operation of the firm and are variable costs that fluctuate according to consumption.

Depending on the department incurring the expenses, utilities expenses can be recorded as administrative expenses, selling expenses, variable overhead, and so on.