Question

f I received a monthly utility bill amounting to $360 on May 10th that is to be paid on June 10th then according the rule " If an asset increases another asset decreases and if an asset increases a liability increases " which asset would increase or decrease and which liability would increase or decrease in this situation?

Answer 1

Utility bill of $360 is received on May 10th and it is paid on June 10th.

When utility bill is received on May 10th, it has the following effects:

(i) Expenses increase by $360. Utility expense is the expense which is increasing.

(ii) Liabilities increase by $360 since the utility bill is not paid on May 10th. 'Utilities payable' is the liability which is increasing.

When utility bill is paid on June 10th, it has the following effects:

(i) Assets decrease by $360. Cash is the asset which is decreasing.

(ii) Liabilities decrease by $360. 'Utilities payable' is the liability which is decreasing.

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