Expense: Definition, Types, and How Expenses Are Recorded

It may come as no surprise that running an electric clothes dryer uses more kWh than charging your mobile phone or using other small electronics. Silicon Valley Power (a municipal utility provider in California) breaks down energy use by appliance. Here is a sample winter electric bill for two people living in a 1391-square-foot home in Wayne County, Michigan. One of the most impactful changes is installing solar panels, which can cut down your electric bill and even increase your home’s value.

• Insurance cost is not capitalized in the balance sheet because it is a recurring expense that is necessary to preserve rather than enhance an asset’s usefulness.
• New Mexico’s largest energy provider is planning a rate request in 2024 in an effort to reduce utility costs.
• A business utilities expense is a cost a business pays for using the infrastructure provided by public utilities companies, they can include electricity, natural gas, water, sewage, and telephone services.
• However, because cellphones are intricately linked to our personal lives for most of us, the IRS scrutinizes this deduction closely to ensure that personal electronics aren’t claimed as a business expenditure.

This knowledge enables better decision-making and more effective implementation of cost-saving measures. One of the best ways to save on your cell phone bill is by watching for promotions from mobile carriers. You’ll often find deals on phone plans—and even new smartphones—when you add a line or switch carriers. Just like your car needs regular maintenance to avoid costly repairs, so does your HVAC system. We invite you to share the insights from this study with your community for noncommercial purposes. Please include a link back to this page to allow your readers full access to our comprehensive findings and methodology.

Practical implementation of utility management strategies requires a balanced approach between technological adoption and user engagement. Regular monitoring, combined with proactive maintenance and strategic upgrades, creates a sustainable framework for long-term cost optimization and resource efficiency. The complexity of modern utility systems demands a comprehensive understanding of various technologies and management approaches. Professional development in this area should cover technical aspects, financial management, and environmental considerations. Cost of Goods Sold refers to costs directly related to the production of your goods or service, including raw materials and labor costs.

For example, ABC International receives a water bill from the local water company that covers the period from the 26th day of the preceding month to the 25th day of the current month, in the amount of $2,000. Additionally depending on the size of the utility bill, a business might maintain separate general ledger accounts for each utility, or combine them into one utilities expense account. If you’re moving house, the what is utilities expense home’s seller or your real estate agent might be able to share what was historically spent on utilities. The local utility companies should also be able to provide the latest rates and fees. For instance, you might have a higher electricity bill in the summer, when your AC is running more often. You might also see a difference due to rate changes, the length of the billing cycle, and whether your bill was based on an estimate or actual reading.

Data Analytics and Predictive Maintenance

It does not matter whether an invoice has been sent by the utility supplier to the company. If there is an amount to be charged that applied to the previous month, it is charged to the current month. Under the accrual basis of accounting, this account reports the cost of the electricity, heat, sewer, and water used during the period indicated in the heading of the income statement. The amount of Utilities Expense for the sales function is classified as a selling expense and the amount used for administration is classified as an administrative expense. Utilities used in the manufacturing process will be part of the cost of the products manufactured. The accrual basis of accounting recognizes utilities expenses as incurred compared to the cash basis accounting method when the bills are paid.

What are some instances of expenses related to utilities?

Missouri has dropped to the fourth spot this year after ranking third last year, but it still remains among the top five states with the highest utility costs per month. Residents here pay above-average prices for natural gas, sewer, and internet services. We update our national data and findings for each state every year to keep things accurate. However, we know that utility costs (like electricity and natural gas) can change with inflation. Utility bills are more than just monthly payments; they reflect consumption habits, regional policies, and the efficiency of home appliances. By examining average costs across states, we gain a clearer picture of the financial impact utilities have on American households.

For example, paying less on advertising reduces costs but also lowers the company’s visibility and ability to reach out to potential customers. For example, on June 30, the company ABC receives the invoice for the water usage during the period from 30 May to June 29 amounting to $2,000. Start with a free account to explore 20+ always-free courses and hundreds of finance templates and cheat sheets. Upgrading to a paid membership gives you access to our extensive collection of plug-and-play Templates designed to power your performance—as well as CFI’s full course catalog and accredited Certification Programs. Harold Averkamp (CPA, MBA) has worked as a university accounting instructor, accountant, and consultant for more than 25 years.

Operating, General & Administrative expenses

This feature helps businesses stay on top of their operating expenses, monitor their cash flow, and identify areas where they can reduce costs. It can also automatically organize categories such as office expenses, travel expenses, and equipment expenses. Our expense tracking feature helps you save time and reduces the risk of errors. For example, in the June 30 adjusting entry, the company ABC needs to make the utilities expense journal entry for the electricity usage during the period of June. As can be seen the journal shown above debits the utilities expense account which represents the cost to the business of using electricity for the period. The credit entry to accounts payable reflects the liability of the business to pay the electricity supplier for the amount of service consumed during the period.

Taxation

In practice, the company usually uses the payment journal entry with the reversing entry as it is simpler and easier. The company only needs to reverse the old entry and post the new expense following the new invoice. It doesn’t need to calculate the difference between the recorded expense/accounts payable and the cash payment. And it also doesn’t need to determine whether the recorded expense/accounts payable is bigger or smaller than the cash payment to decide if they need to debit or credit the utilities expense account.

Utah has the lowest average bill at $41.33, benefiting from milder weather and possibly more efficient energy use. These figures highlight the variance in gas bills across the country, influenced by regional climates, energy policies, and natural gas availability. The state’s economic conditions and energy policies likely contribute to this scenario. Massachusetts residents benefit from a robust economy with healthcare, education, and technology sectors that offer higher-paying jobs. These policies support a more sustainable energy infrastructure and help mitigate the overall utility costs for residents by promoting energy savings. Your utility bill details how much gas, electricity, and water you used during a specific time period and how much it cost you.

South Dakota’s total utility costs have dropped 13% year over year, largely thanks to a decrease in natural gas prices by over $20 per month. This puts South Dakota among the top five least expensive states for utilities this year. Natural gas prices fell due to increased production and lower overall consumption. Despite having the lowest total utility costs among the five top states ($691.12 per month), Alaska residents spend the highest percentage of their income on utilities (7.6%).