The Home Energy Fair Practices Act (HEFPA) rules give you responsibilities as well as rights in dealing with the utility that provides your natural gas, electric or steam service. This PSC Guide describes the highlights of those rules, and lets you know how you can get help when you feel your rights have been violated.
In most situations, when you apply for service verbally or in writing, the utility will provide service to you within five business days of receiving your application. However, the utility can refuse to provide service if you owe money on a previous account in your name, unless one of the following situations applies to you:
Your utility is excused from providing service within the five day time period for any one of the following reasons:
In such cases, the utility will provide service as soon as possible after the problem is resolved.
You can apply for service verbally; however, the utility can require a written application if, at your residence, there is an amount owed from a previous account, the meter has been tampered with, the meter reading has advanced since the last customer left, or the application is made in your name by someone other than yourself. For a verbal application, you are only required to provide your name, address and telephone number and the address and account number of any prior account.
If a written application is requested, the utility can also require reasonable proof of your identify (such as a drivers license or credit card) to validate your name and prior address; and proof of responsibility for service at your residence (such as a lease, deed, bill of sale or other document).
If the utility denies your application, it has to send you a notice within three business days of your date of application, informing you of:
When running a business understanding the proper accounting procedures for everyday expenses like utility bills is essential for maintaining accurate financial records. One common question that arises is when a company receives a utility bill but will not pay it right away what should it do? The answer is straightforward but critically important for proper accounting practices.
The Proper Journal Entry for Unpaid Utility Bills
When your company receives a utility bill but won’t pay it immediately you should
Debit Utilities Expense and Credit Accounts Payable
This journal entry accomplishes two important things:
- It recognizes the expense in the period when it was incurred
- It creates a liability that shows you owe this money
This approach adheres to the accrual basis of accounting, which is the standard for most businesses and required for GAAP compliance.
Why This Entry is Correct
Recording unpaid utility bills this way is correct because
- The service has already been received and used
- The expense has been incurred even though payment hasn’t happened yet
- Your business has a financial obligation to pay, creating a liability
- It ensures your financial statements accurately reflect your true expenses and liabilities
- It matches the utility expense with the period when you actually used the service
Incorrect Approaches to Avoid
Let’s clear up some common mistakes companies make when recording unpaid utility bills:
❌ Don’t wait to record the entry until payment is made
❌ Don’t debit Accounts Payable and credit Utilities Expense (this is backward)
❌ Don’t debit Utilities Expense and credit Accounts Receivable (receivables are for money owed to you)
❌ Don’t make no entry at all (this understates your expenses and liabilities)
The Complete Accounting Cycle for Utility Bills
To fully understand how to handle utility bills, let’s look at the entire process:
Step 1: When You Receive the Bill
- Debit Utilities Expense
- Credit Accounts Payable
Step 2: When You Eventually Pay the Bill
- Debit Accounts Payable
- Credit Cash
This two-step process ensures that both your expense recognition and cash flow are recorded accurately and in the appropriate accounting periods.
A Real-World Example
Let’s say your company receives an electricity bill for $1,500 on March 15th, but you plan to pay it on April 10th.
March 15th (Bill Receipt):
Debit: Utilities Expense $1,500Credit: Accounts Payable $1,500April 10th (Payment):
Debit: Accounts Payable $1,500Credit: Cash $1,500This ensures that your March financial statements will show the $1,500 utility expense even though you haven’t paid it yet, giving a more accurate picture of your actual expenses for March.
The Importance of Proper Utility Bill Accounting
I can’t stress enough how important it is to follow these accounting principles. Here’s why:
- Accurate financial reporting – Your financial statements will reflect true expenses and liabilities
- Better cash management – You’ll have visibility into upcoming payment obligations
- Preventing late fees – Tracking unpaid bills helps avoid missing payments
- Cost control – Proper tracking helps monitor utility consumption and costs
- Audit compliance – Following proper accounting methods satisfies auditors and regulatory requirements
Managing Your Accounts Payable for Utility Bills
To effectively manage unpaid utility bills, we recommend:
Maintain an Aged Accounts Payable Ledger
This tracks:
- Which bills are due when
- Total outstanding balances
- Which payables are current vs past due
Implement Payment Controls
Smart controls include:
- Centralizing utility payment procedures
- Recording bills as soon as they arrive
- Setting up electronic payment reminders
- Requiring approval for large utility payments
- Reviewing your aged payables schedule regularly
How ERP Systems Can Help
Modern ERP systems make utility bill accounting much easier by:
- Automating the creation of payables
- Sending alerts for upcoming due dates
- Improving cash forecasting accuracy
- Maintaining your aged payables ledger automatically
This automation provides efficiency, speed, and accuracy around utility bill accounting.
FAQ About Utility Bill Accounting
Q: What happens if we don’t record the bill until we pay it?
A: Your expenses will be understated in the current period and overstated in the future period when payment occurs. This distorts your financial performance metrics.
Q: How do we handle utility bills that span multiple accounting periods?
A: You should prorate the expense across the periods based on the service dates, not the billing date.
Q: What if we receive a utility bill with an error?
A: Record the correct amount based on your estimate, then adjust the entry when the issue is resolved.
Q: Do utility companies report late payments to credit bureaus?
A: Typically, utility bills have minimal impact on improving your credit score. However, paying bills late can lead to your account being marked as past due, which might hurt your credit score.
Q: What if we’re using cash-basis accounting instead of accrual?
A: Under cash-basis accounting, you would record the expense only when you actually pay the bill. No entry would be made when receiving the bill. However, most sizeable businesses use accrual accounting.
Real-Life Application
In my experience managing accounting for a mid-sized manufacturing company, we used to have issues with our quarterly financial reporting because some departments weren’t recording utility bills until payment. This created artificial fluctuations in our utility expenses that didn’t reflect actual usage patterns.
After implementing proper procedures to debit Utilities Expense and credit Accounts Payable immediately upon receipt, our financial reports became much more consistent and reliable. This also helped us identify a major gas leak that had been hidden by the inconsistent expense recording!
Key Takeaways
To summarize what we’ve learned:
-
When you receive a utility bill but won’t pay it right away:
- Debit Utilities Expense
- Credit Accounts Payable
-
When you actually pay the bill:
- Debit Accounts Payable
- Credit Cash
-
This approach ensures:
- Expenses are recorded in the correct period
- Liabilities are accurately reflected
- Financial statements represent your true financial position
Remember, proper accounting for unpaid utilities provides better financial oversight and cost control for your business. It might seem like a small detail, but these accounting fundamentals add up to make a big difference in the accuracy and usefulness of your financial reporting.
By following these accounting principles consistently, you’ll have clearer insights into your company’s financial health and better control over your utility expenses.
Access to the Meter
If your utility has sent you estimated bills for a period of four months, it must take additional measures to obtain an actual reading, such as making an appointment to gain access to the meter at a time other than normal business hours, or asking you to read the meter. If your utility has sent you estimated bills for six months, it must send you — and the person who controls access to the meter — a notice, offering you a special appointment to read its meter, both during and after normal business hours. If your utility has sent you estimated bills for eight months and it is unable to gain access to its meter, it may send a letter advising you that if you do not make an appointment so that the utility can obtain an actual reading, a $25 charge will be added to your next bill or that of the party controlling access to the meter. The utility can also get a court order to gain access to its meter.
A bill based on an actual reading after one or more estimated bills may show that the estimates were too low. If your actual consumption is 50% greater than your estimated bill, or is $100 or more, you can pay that difference in monthly installments over a period of at least three months.
Utility personnel who come to your residence to read the meter are required to carry photo-identification badges.
Payment Agreement Terms
If you have a financial problem that prevented you from paying previous bills, you can make a deferred payment agreement, which will allow you to pay the overdue amount in reasonable installments. However, the utility can refuse to offer you a payment agreement when it believes you can pay the amount you owe, and after its own investigation, the PSC also determines that you have the ability to pay what you owe.
While your utility may offer you specific payment agreement terms, you do not have to accept what it proposes. You can write your own payment terms. However, these terms must be based upon your ability to make payments on what you owe as well as full payments on your current bills. Your utility must accept any terms you propose which are fair and equitable, considering your financial circumstances; however, it can refuse any terms where you would be paying less than $10 a month on what you owe.
Unless you agree to large installment payments, your monthly installments on a payment agreement cannot be more than half of your average monthly utility bill, or 10% of what you owe, whichever is greater.
Should your financial situation change due to circumstances beyond your control, at your request, your utility will change your agreement to make sure that the terms are reasonable.
Down Payments
Based on your financial circumstances, the agreement between you and your utility may provide for any size down payment or no down payment at all. Unless you agree otherwise, HEFPA allows down payments no greater than the following:
- 15% of the amount you owe, or one-half of your average monthly bill, whichever is greater; however,
- if the total amount you owe is less than this amount, then the down payment cannot be more than 50% of what you owe.
For example, if you owed $400 and your average monthly bill is $50, 15% of what you owe is $60 and one-half of your bill is $25. Therefore, the largest down payment which the utility can require is the greater of the two, or $60.
Broken Agreements
If you fail to make timely payments on your payment agreement, your utility can cancel the agreement and take action to have your service shut off. At least eight days before it starts the process to have your service shut off, your utility will send you a notice that you have not kept current in your agreement payments, and offer you an opportunity to make those payments current. You may also change the terms of the agreement, if your financial situation has changed due to circumstances beyond your control.
However, if you have a broken agreement which required payments higher than the greater of one-half of a months average usage or 10% of the remaining amount that you owe, the utility must give you another agreement. This agreement, which would be sent with any final termination notice, would require monthly payments equal to the greater of those two amounts.
When and How to Pay
Most utility bills are to be paid upon receipt. A payment is overdue 23 days after the bill is mailed to you. If you pay after that, your utility can require you to pay a late payment charge. If you have any questions about your bill, contact your utility immediately at the phone number listed on the bill. If you are not satisfied with the utilitys response, call the PSC.
Most utilities prefer that you pay your bill by mail. This helps the utility process your payment quickly. However, you can pay in person at any payment office of the utility, or at any local bank or store as long as it is authorized to accept bill payments for the utility. If you want to know the location of your nearest payment center, have a question as to whether a store is authorized to accept such payments, or when such payments are posted to your account, call your utility.
A balanced, or levelized, payment plan helps even out bills that are high in one season and low in another so that your energy charges stay pretty much the same throughout the year. This payment plan does not reduce your overall energy expenses for the year, but it does help you manage your budget. Your utility can provide more information about its balanced billing program.
By reading its meter, your utility is able to send you a bill based on the actual amount of gas, electricity or steam you used. In certain circumstances, your utility will send you an estimated bill, based on your previous usage. Your utility may give you an estimated bill when it is physically prevented from reading its meter, where it appears that the actual reading may be incorrect, or if the PSC has approved a billing system for a utility where estimated rather than actual reading are routinely provided every other month. You may also receive an estimated bill if you are a seasonal or short-term customer, but an actual reading has to be taken when service is canceled.
Any difference between an estimated reading and the actual consumption for that billing period is resolved automatically when the next actual reading is taken.
