Utilities Expenses

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What are Utilities Expenses?

Utilities Expenses are costs incurred by the company for using the services of public utility companies like sewage, electricity, waste disposal, water, broadband, heating, and telephone. Usually, these costs make up a significant portion of the opex for almost all businesses.

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Examples

For Example, the accountant of Company Y ltd is confused that all the expenses out of the below-mentioned incurred expenditure for August 2019 should be treated as the utility expenses of the company for the period or not. Calculate the total value of utility 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

Solution:

Utilities Expenses are the cost that the company incurs during a period to avail of the services provided by the public utility companies in the place of operation 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 is 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.

Utilities Expenses Example 1-1
  • Total Utilities Expenses = Telephone bills + Gas Bill + Electricity expenses + Water charges
  • = $ 1,000 + $ 500+ $ 1,100 + $ 350
  • = $ 2,950

Important Points

  • A cost that the company incurs during a period to avail of the services provided by the public utility companies is known as the Utilities Expenses.
  • All the costs that a company incurs on the utility 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 are incurred. Now, these will be considered as part of the closing inventory against those goods 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 returned when the company stops availing of the facility.

Conclusion

Utilities Expenses in accounting are the cost that the company incurs during a period to avail of 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. The company calculates these expenses incurred in the accounting period are calculated and the same remains as the liability until the company makes the payment 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 organization's work.