A brewing company operating in an Ontario city experiencing water shortages received its water bill for December 2013,on December 31,2013.The bill ($8,000)represents the cost of water used in December to make its product.The company will not publish the 2013 financial statements until February 2014.Therefore,the adjusting entry as of December 31,2013 includes which of the following?
A) cr. utilities payable $8,000
B) cr. cash $8,000
C) cr. utilities expense $8,000
D) no adjusting entry needed because the bill will not be paid until January 2014

Question

Quizplus · Accepted Answer

The adjusting entry on December 31, 2013 should be to credit utilities payable for $8,000 to reflect the company's obligation to pay for the water used in December, even though the bill was received and paid in January 2014. The company would recognize the expense in December through this adjustment. Option B is incorrect because the company did not pay the bill in December. Option C is incorrect because the expense was incurred in December, not in January when the bill was paid. Option D is incorrect because an adjusting entry is necessary to record the expense and the corresponding liability.

A Brewing Company Operating in an Ontario City Experiencing Water