Paid Electricity Bill by Cheque Journal Entry
Electricity is the most common expense that businesses need to spend on electricity usage. It will happen when the company has a physical office.
The electricity expense is the income statement line item that company expects to pay on a monthly basis.
The supplier usually bills the electricity invoice at the month-end and expects the customer to pay it back within two or three weeks. It depends on the company’s credit policy.
The company will include the electricity expense in the monthly income statement. They have to record the expense when receiving the invoice. They have to follow the accounting accrued basic which the expense and revenue is recorded when they are incurred rather than paid. If the invoice is arriving late, they have to record expenses based on the estimated amount.
After receiving an invoice from the supplier, the company has obligation to settle the electricity expense. As normal payable, the company requires to pay the bill with cash on hand or cash at bank.
In order to prevent any fraud or error, the company may use the cheque to settle the electricity bill. The cheque is more secure than using the cash on hand. The company can specify the supplier named on the check with the bill amount. So it means only the supplier will be able to claim the check and they can only withdraw the exact amount on it.
Journal Entry Paid Electricity Bill by Cheque
When company receives an electric bill, it will record the utility expense on the income statement. The other side will impact the accounts payable which are the amount owed to the supplier.
The journal entry is debiting electricity expenses and credit accounts payable.
| Account | Debit | Credit |
|---|---|---|
| Utility Expense | $$$ | |
| Accounts Payable | $$$ |
When the company issue check to pay for the electricity bill, they will reverse the accounts payable and reduce cash in the bank balance.
The journal entry is debiting accounts payable and credit cash at the bank.
| Account | Debit | Credit |
|---|---|---|
| Accounts Payable | $$$ | |
| Cash at Bank | $$$ |
Example
Company ABC is the manufacturing, electricity is one of the main operating expenses on the income statement.
On 30 June, company receives the electricity bill of $ 20,000, which they record it in the monthly income statement.
On 05 July, company issued a check to pay the electricity bill. Please prepare a journal entry for paid electricity bill with a cheque.
On 30 June, the supplier issued the electricity bill for the month of June. ABC needs to record the expense for the month and accounts payable.
The journal entry is debiting utility expense $ 20,000 and credit accounts payable $ 20,000.
| Account | Debit | Credit |
|---|---|---|
| Utility Expense | 20,000 | |
| Accounts Payable | 20,000 |
The entry will ensure that the electricity expense for the current month is included in the income statement. The accounts payable will be on the balance sheet until the company settles with supplier.
On 10 July, ABC issued a cheque to pay for the electricity bill for the month of June. Company already record expense and accounts payable in the previous month, so they cannot record expense again. They have to revere the accounts payable and cash at bank.
The journal entry is debiting accounts payable $ 20,000 and credit cash at bank $ 20,000.
| Account | Debit | Credit |
|---|---|---|
| Accounts Payable | 20,000 | |
| Cash at Bank | 20,000 |