What are Utilities Expenses?
Utilities Expenses are cost incurred by the company for using the services of public utility companies like sewage, electricity, waste disposal, water, broadband, heating, telephone, and usually, these costs make up a significant portion of the opex for almost all businesses.
For Example, the accountant of the Company Y ltd is confused that what are all the expenses out of the below mentioned incurred expenditure for the month of August 2019 should be treated as the utilities expenses of the company for the period or not. Calculate the total value of utilities expenses out of the total below mentioned expenses of the company during the period:
Utilities Expenses are the cost which the company incurs during a period for the purpose of availing the services provided by the public utility companies in the place of operation of the company like the telephone facility, electricity, gas, water, sewer, etc. Out of the above-mentioned expenses Telephone bills, Gas Bill, Electricity expenses and water charges will be considered, as these are the services for which the infrastructure provided by the public utility companies are used. For the rest of the expenses i.e., rent and salary there is no use of the services provided by the public utility companies, so they will not be considered.
- Total Utilities Expenses = Telephone bills + Gas Bill + Electricity expenses + Water charges
- = $ 1,000 + $ 500+ $ 1,100 + $ 350
- = $ 2,950
- A cost which the company incurs during a period for the purpose of availing the services provided by the public utility companies is known as the Utilities Expenses.
- All the cost incurred by the company on the utilities expense related with its manufacturing operations are considered by it as the part of the total factory overhead of the company and these costs are then allocated on the basis of the total number of units produced during the period in which such expense is incurred. Now, these utilities expenses incurred by the company will be considered as the part of the closing inventory of the period against those goods which are produced during the year but not sold in that year and thus will not be charged as an expense in that period.
- It is generally the policy of the utility companies to take some amount as the deposit from the customer at the beginning of the period when the customer starts taking the facility from the utility companies. This deposit will be recorded as an asset by the company on its balance sheet and not charged as an expense because such deposit will be given back when the company stops availing the facility.
Utilities Expenses in accounting are the cost which the company incurs during a period for the purpose of availing the services provided by the public utility companies in the place of operation of the company like the telephone facility, electricity, gas, water, sewer, etc. These expenses incurred in the accounting period are calculated by the company and the same remains as the liability until the payment of the same is made by the company to the respective service provider. Most of the utilities are the basic utilities without which the organization will not be able to continue its operations and thus plays an essential part in the working of the organization.
This has been a guide to Utilities Expenses. Here we discuss example of Utilities Expenses in accounting such as telephone bills, gas bill, electricity bill, etc along with advantages and disadvantages. You can learn more about accounting from the following articles –