Utility Expense: Definition, Accounting, Journal Entry, Example, Debit or Credit, Asset or Liability

When the cash is received at a later time, an adjusting journal entry is made to record the cash receipt for the receivable account. The company makes this journal entry to recognize the incurred expense as well as the obligation existed at the end of the period. Likewise, this journal entry increases both the expense (debit) in the income statement and the liability (credit) in the balance sheet.

This is posted to the Depreciation Expense–Equipment T-account on the debit side (left side). Accumulated Depreciation–Equipment has a credit balance of $75. This is posted to the Accumulated Depreciation–Equipment T-account on the credit side (right side). Prepaid insurance premiums and rent are two common examples of deferred expenses. In accrual accounting, revenues and the corresponding costs should be reported in the same accounting period according to the matching principle.

Adjusted trial balance

Understanding who buys gift cards, why, and when can be important in business planning. Grocery stores of all sizes must purchase product and track inventory. While the number of entries might differ, the recording process does not. For example, Colfax might purchase food items in one large quantity at the beginning of each month, payable by the end of the month. Therefore, it might only have a few accounts payable and inventory journal entries each month.

  • The unadjusted trial balance may have incorrect balances in some accounts.
  • To do this, companies can streamline their general ledger and remove any unnecessary processes or accounts.
  • On the other hand, the $2,500 of wages payable (credit) is the liability that the company owes to its employees for the five days of works.
  • If this journal entry is not recorded, both total expenses in the income statement and total liabilities in the balance sheet will be understated by 2,500.
  • Some cash expenditures are made to obtain benefits for more than one accounting period.
  • When looking at transactions like this one, we need to determine what we are being given.

During the year, it collected retainer fees totaling $48,000 from clients. Retainer fees are money lawyers collect in advance of starting work on a case. When the company collects this money from its clients, it will debit cash and credit unearned fees. Even though not all of the $48,000 was probably collected on the same day, we record it as if it was for simplicity’s sake. Let’s say a company paid for supplies with cash in the amount of $400.

As you can see, there is one ledger account for Cash and another for Common Stock. Cash is labeled account number 101 because it is an asset account type. The date of January 3, 2019, is in the far left column, and a description of the transaction follows in the next column.

Payment of utilities expense without reversing entry

If we contact Ginormic National Bank to payoff the loan on December 31, we would need to pay the principal owed plus the $670 of interest. The interest is considered a separate payable and should not be added to the note payable. Make sure to watch the wording in all adjusting entry transactions to ensure you understand what information you have.

10 Adjusting Entry – Examples

On the other hand, the 2,500 of debit in wages expense is to recognize the expense that has already incurred for five days (from Monday 3rd to Friday 7th) in the current period of August. After posting the above entries, the values of some of the items in the unadjusted trial balance will change. Accounts Receivable is debited hence is increased by $300. Using the table provided, for each entry write down the income statement account and balance sheet account used in the adjusting entry in the appropriate column.

Popular Double Entry Bookkeeping Examples

For example, a company pays $4,500 for an insurance policy covering six months. It is the end of the first month and the company needs to record an adjusting entry to recognize the insurance used during the month. The following entries show the initial payment for the policy and the subsequent adjusting entry for one month of insurance usage.


We can post these transactions using T-accounts or ledger cards. We are using the same posting accounts as we did for the unadjusted trial balance just adding on. Notice how we start with the unadjusted trial balance in each account and add any debits on the left and any credits on the right. Another type of unrecorded revenue deals with work the business was paid for before the work was completed (unearned revenue) which was completed by the end of the period.

An adjusted trial balance is prepared after adjusting entries are made and posted to the ledger. In this lesson, we will discuss what an adjusted trial balance is and illustrate how it works. Taxes are only paid at certain times during the year, not necessarily every month.

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On December 31, the employees had worked four days for which they had not been paid. The company received a bill for December’s utilities on January 5. The balance in the supplies account at the end of the year was $5,600.