What is a common adjusting entry for utilities?

The correct response highlights the importance of properly matching expenses to the period in which they are incurred for accurate financial reporting. Accruing utility expenses that have been incurred but not yet paid ensures that the financial statements reflect the true financial position of the entity during the reporting period.

When a business consumes utilities, such as electricity or water, it may not receive a bill until after the period has ended. By recognizing these expenses before payment is made, the organization adheres to the accrual accounting principle, which requires expenses to be recorded in the period they are incurred, rather than when cash is paid. This practice gives stakeholders a more complete understanding of the company's obligations and expenses, leading to clearer financial performance analysis.

The other options do not align with the typical process for adjusting utility expenses at the end of an accounting period. Recording prepaid utility expenses is relevant when a payment is made in advance for utilities that will be consumed in future periods, while adjusting utility revenues for cash received does not address expenses at all. Lastly, transferring utility expenses to asset accounts would be inappropriate, as expenses are not converted to assets; instead, they are recognized as costs incurred to generate revenue within the same period. Therefore, accruing utility expenses is the most aligned approach for