On December 31, Carmack Company received a $215 utility bill for December that it will not pay until January 15. The adjusting entry needed on December 31 to accrue this expense is:
A) Debit Accounts Payable $215; credit Utilities Expense $215.
B) Debit Prepaid Utilities $215; credit Accounts Payable $215.
C) Debit Prepaid Utilities $215; credit Cash $215.
D) Debit Utilities Expense $215; credit Accounts Payable $215.
E) Debit Utilities Expense $215; credit Prepaid Utilities $215.

Question

Quizplus · Accepted Answer

The adjusting entry needed on December 31 to accrue this expense is to debit Utilities Expense $215 and credit Accounts Payable $215. This is because the expense was incurred in December but not paid until January, so it needs to be recognized as an expense in December (when it was used) and as a liability (Accounts Payable) for the amount owed but not yet paid. Option A is incorrect because it would reduce Accounts Payable when the bill has not yet been paid. Option B and C are incorrect because they involve Prepaid Utilities, which is not applicable in this situation. Option E is incorrect because it suggests that the expense has already been paid, when in fact it hasn't been paid yet.

On December 31, Carmack Company Received a $215 Utility Bill