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 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:
- Telephone Bills: $1,000
- Gas Bill: $500
- Rent Expenses: $2,400
- Salary Paid: $150,000
- Electricity Expenses: $1,100
- Water Charges: $350
Utilities Expenses are the cost which the company incurs during a period to avail 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 expenses mentioned above, 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.
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- Total Utilities Expenses = Telephone bills + Gas Bill + Electricity expenses + Water charges
- = $ 1,000 + $ 500+ $ 1,100 + $ 350
- = $ 2,950
- A cost that the company incurs during a period to avail the services provided by the public utility companies is known as the Utilities Expenses.
- All the costs that a company incurs on the utilities expense related to its manufacturing operations are considered part of the total factory overhead of the company. These costs are then allocated based on the total number of units produced during the period in which such expenses incurred. Now, these will be considered as 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 a 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 to avail 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 company makes the payment of the same 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 article has been a guide to Utilities Expenses. Here we discuss the example of Utilities Expenses in accounting such as telephone bills, gas bills, electricity bills, etc. along with advantages and disadvantages. You can learn more about accounting from the following articles –