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Electricity, phone bills are expenses and they are included in the Income Statement. The difference between costs of manufactured products is that some portion of the electricity bills are allocated to the factory overhead cost under cost of goods manufactured and phone bills are always included under general and administration expenses.
Utility expenses like electricity /phone bills and rent represent on the income statement under the General & Administrative Expenses category. In your general ledger you could have a seperate account for each depending on the relative amount or importance for each. These expenses comes after gross profit to arrive at the operating profit (EBITDA), i.e. profit before interest, tax, depreciaiton and amortization.
On the other hand the cost of manufactured products is a component of the Cost of Goods Sold
Cost of Goods Sold = Begining Inventory + Cost of Good Manufactured - Ending Inventory
So, you have to compute cost of goods manufactured first, which include direct materials, direct labour and factory overhead.
At the end of the period, if you would have unpaid electricity or phone bills it will be showen on the current liabilities section of the balance sheet.
Also, the net income for the year will be added to your accumulated earnings on the equity section of the balance sheet.
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Electric bills and Phone bills are administrative overhead. These are items of Income Statement and not of balance sheet. These will affect the bottom line of income statement. From the income statement, retained earnings, if any, are transferred to Balance sheet.
So, Electricity bills and Phone bills are not reflected in Balance sheet
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I agree with answers pals, each according to his own way
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I agree with the answers given above. Electricity expense and Telephone expense are recorded as General Administration Expenses in Income Statement as they are expenses.While Electricity Payable and Telephone Payable need to be recorded in Current Liability section in Statement of Financial Position/ Balance Sheet.
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Let me define what is manufacturing cost:
Manufacturing cost is the sum of costs of all resources consumed in the process of making a product. Usually it is classified in three categories:
1) Material
2) Labour
3) Manufacturing Overheads
An expense may be a manufacturing expense, administrative or selling expense depending of its purpose. So electricity and telephone expense may be a manufacturing expense as well as an administrative. For example, A factory electricity and telephone bill will always be manufacturing expense, whereas said expenses of head office will always be administrative expenses.
And sometimes you have to proportionate the expense between manufacturing and administrative where the expenses are consumed for both purpose.
Expenses are classified in income statement and not in balance sheet.
If any amount is unpaid for the expenses, an amount equal to the unpaid amount will be classified as liability in balance sheet. and if the bill is not received for the month, you can create a provision on the basis of past trend.
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