Question

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:

Debit Utilities Expense $215; credit Accounts Payable $215.
Debit Accounts Payable $215; credit Utilities Expense $215.
Debit Prepaid Utilities $215; credit Cash $215.
Debit Utilities Expense $215; credit Prepaid Utilities $215.
Debit Prepaid Utilities $215; credit Accounts Payable $215.

Answer 1

The correct adjusting entry to accrue the $215 utility bill that Carmack Company received on December 31 is to debit Utilities Expense and credit Accounts Payable for $215.

Step-by-step explanation:

When Carmack Company received a $215 utility bill for December on December 31, but will not pay it until January 15, an adjusting entry is needed to reflect this accrued expense in the financial statements for the year ending December 31.

The correct entry to record on December 31 would be: Debit Utilities Expense $215; credit Accounts Payable $215. This entry increases the utilities expense for December, which reflects the economic activity of the period, and acknowledges a liability (accounts payable) that the company owes, which will not be paid until the next accounting period. It is key to ensure accuracy in these entries, as illustrated by Noel's diligence in a different scenario.

When Noel noticed an overpayment on an equipment bill, proactive communication ensured that no incorrect transactions would occur.