Utilities

A: Electricity and water expenses are costs paid by the company for electricity and water consumption in its offices, factories, and warehouses. They are considered administrative operating expenses, except for the portion used in production, which is considered an indirect manufacturing expense and is included in manufacturing cost.

A: Electricity and water bills are recorded when received with the entry: Dr. Utilities Expense (for consumption value), Dr. Input VAT (if applicable), Cr. Bank Account or Accounts Payable (for the total amount). If the bill has not arrived by period-end, an accrual is recorded: Dr. Utilities Expense, Cr. Accrued Utilities.

A: Factory utilities are considered an indirect manufacturing overhead cost and are allocated to products as part of manufacturing cost. Administrative utilities are considered an administrative expense and appear on the income statement as part of administrative and general expenses.