The Utility Expense account is classified as which type of account?

• A. Asset
• B. Expense
• C. Revenue
• D. Liability

Answer: (B)

Utility expense is an expense account. In accounting, accounts are grouped into assets, liabilities, equity, revenues, and expenses, and expenses represent costs incurred to operate the business. Utilities such as electricity, water, and gas are ongoing costs that reduce net income for the period, not assets or obligations the business owns or owes at a future date, nor are they revenue earned. When you record a utility bill, you typically debit Utility Expense and credit Cash or Accounts Payable, which shows the increase in costs and the corresponding decrease in assets or increase in liabilities. Expenses have a debits-increase tendency, reflecting their role in reducing equity through lower retained earnings at period end. So, the correct classification is an expense.