Paid Electricity Bill Journal Entry

Paid electricity is the payment that company makes to the supplier regarding electricity consumption.

The company operating the business requires a huge amount of expense. The expenses can be separated into two parts which are the cost of goods sold and the operating expense.

Cost of goods sold is the cost that company spends to produce the goods and they are sold to the customers. If the company purchase finished goods and resell them to the customer, the cost of goods sold refers to the cost of acquiring the goods and sold to customers. The cost of goods sold will be increased or decreased depending on the sale during the period.

Operating Expense is expenses that require to support the business activities. Most of the operating expenses will be fixed from month to month. They are not changed due to the change in monthly revenue. They have included salary expenses, depreciation expenses, rent, and utility expenses. These are the necessary expenses that require to allow the business to operate properly.

Electricity is one of the operating expenses that a company has to spend on a monthly basis. The company will require to pay for the electricity every month after the electricity consumption. The supplier will issue a bill based on the consumption. Then the company has the obligation to settle the payment within a certain period.

The company has to record the electricity consumption as an expense on the income statement. And most of the suppliers would not allow a credit purchase. The customers have to make payment within a few weeks after receiving the bill.

Journal Entry for Electricity Paid

To follow the accrued basics, the company has to record expenses when they consume service. At the same time, suppliers require payment, so company has to record the cash paid too. Most of the time, company is required to pay cash to the supplier at the month’s end.

The journal entry is debiting electricity expenses and credit cash.

The entry is increasing the electricity expense on the income statement. It will reduce the company cash balance too.

Example

Company ABC has received an electricity bill of $ 5,000 for the period of a month. The company has paid for the electricity by using cash at bank after receiving the bill from the supplier. Please prepare a journal entry for the payment of electricity.

The company has consume electricity during the month, so they have to record the electricity expense to comply with the accrued accounting.

The journal entry is debiting electricity expense $ 5,000 and credit cash at bank $ 5,000.