What entry records utilities expense of $255?

• A. Debit Cash $255, Credit Utilities Expense $255.
• B. Debit Utilities Expense $255, Credit Cash $255.
• C. Debit Utilities Expense $255, Credit Accounts Payable $255.
• D. Debit Accounts Payable $255, Credit Utilities Expense $255.

Answer: (C)

When an expense is incurred but not yet paid, you record the cost and create a liability. Expenses increase with a debit, while liabilities increase with a credit. So for utilities that cost 255 and haven’t been paid yet, you would debit Utilities Expense for 255 to recognize the cost, and you would credit Accounts Payable for 255 to show the obligation to pay later.

If the bill had been paid immediately, the entry would be debit Utilities Expense 255 and credit Cash 255. Debiting Accounts Payable would reduce the liability, which doesn’t reflect the scenario of incurring the expense on account. Crediting Utilities Expense or debiting Cash would also misstate the transaction.