Utilities are often the last open item at month-end. The power was used and the gas was burned, but the bills have not arrived, and some will not arrive for weeks.
An accrual records that cost in the month it was incurred, using an estimate, then corrects it when the bill comes. Done well, it is a short routine. Done by copying last month’s total, it adds a variance every month that someone has to explain.
This note covers the mechanics. Your controller and auditors set the accounting policy, including materiality and whether entries reverse.
Why utility bills miss the close
Three things put utilities behind the rest of accounts payable.
- Read cycles do not match months. A meter read on the 18th produces a bill covering the 19th of one month to the 18th of the next.
- Bills lag the read. The bill typically arrives days after the read date, then sits in a mailbox or an inbox before it reaches accounts payable.
- Volume. A 40-site portfolio with electric, gas and water at each has more than 100 bills a month, each on its own cycle.
At close, any given month has some days already billed, some days covered by a bill not yet received, and some days not billed at all.
Three ways to estimate
Most teams use one of three methods. Each has a place.
| Method | How it works | Good for | Weak spot |
|---|---|---|---|
| Run rate | Last bill’s cost per day times the unbilled days | Stable sites, small accounts | Misses seasonal swings |
| Prior year | Same period last year, adjusted for known changes | Seasonal sites with steady operations | Misses new equipment, closures and price changes |
| Usage times tariff | Interval data for the unbilled days, priced on the current schedule | Large accounts, demand-heavy sites | Needs interval data and a priced tariff model |
A sensible portfolio uses all three. Run rate for small accounts, prior year for seasonal ones, and usage times tariff for the handful of large accounts that carry most of the cost.
Count the unbilled days
The core of every method is the day count. For each account, find the last bill received and its end date, then count the days from the next day through month-end.
In this example, October closes on the 31st. A site’s last bill covers September 19 to October 18. That leaves October 19 to 31 unbilled: 13 days.
If the bill ending October 18 has not arrived either, the unbilled period starts at the prior bill’s end date. This is where accruals most often go wrong: a missing bill is treated as zero rather than as an extra period to estimate.
Keep the count per account, not per site. A site with three accounts on three read cycles has three different unbilled periods.
One site, worked through
In this example, the site’s last electric bill covered 30 days and cost $6,000, or $200 a day. The run-rate accrual for 13 unbilled days is $2,600.
Now check it against the prior year. Last year’s bill for the same late-October days ran $180 a day. Facilities added a freezer case in the spring and expects about 10% more load, so the adjusted figure is $198 a day. For 13 days, that is about $2,570.
The two methods land close together, which is the point of running both on larger accounts. When they disagree by more than your threshold, someone should ask why before the entry is posted.
Where demand makes it harder
Energy charges scale with days. Demand charges do not. A demand charge is typically set by the single highest 15-minute load in the billing period, so a partial period still carries most of it.
If demand is a large share of a site’s bill, a run-rate accrual can understate or overstate the cost depending on when the peak falls. Our demand charge calculator shows what share of a bill is demand, given usage, peak kW and example prices. Sites where demand is a large share need the usage times tariff method, or a manual adjustment that treats the demand charge as a monthly amount rather than a daily one.
Gas follows the weather
Gas accruals have their own trap. Heating load tracks temperature, so a run rate from a mild September bill will understate a cold late October.
For heating accounts, the prior-year method works better when it is adjusted for weather. Compare heating degree days for the unbilled period against the same days last year, and scale the heating share of the bill by the ratio. A sentence in the workpaper saying which weather station you used keeps the next person from redoing the work.
Price changes inside the period
A rate change or a rider reset in the middle of the unbilled period means the last bill’s cost per day is the wrong price. The utility will prorate the change on the next bill, so your estimate should do the same.
In this example, a rider that adds to the per-kWh price resets on October 25. Of the 13 unbilled days, six fall before the change and seven after. Price the first six on the old rider and the last seven on the new one. For most accounts the difference is small. For a large demand-metered account, or a base rate change after a rate case, it can be the largest single adjustment in the entry.
The utility’s notices and the tariff’s rider sheets tell you which dates to watch. Put them on the close calendar with the effective date, so nobody learns about a change from the variance.
Set a method per account
Do not choose a method each month. Choose it once per account, write it down, and change it only with a reason.
A short method table does the job: account, site, commodity, method, threshold for review, and the person who owns the account. The threshold is the difference between estimate and actual that triggers a question. Many teams set a percentage for large accounts and a dollar floor for small ones, so a $20 miss on a sign meter does not take the same time as a $2,000 miss at a distribution center.
Auditors tend to ask the same two questions about utility accruals: how was the estimate made, and how close was it last time? A method table and a true-up column answer both.
True up every month
An accrual is only as good as the habit of checking it.
- Reverse last month’s accrual on the first day of the new month, if that is your policy.
- Book each bill as it arrives, for its full amount.
- Compare the actual cost of the accrued days against the estimate, per account.
- Record the difference and a one-line reason: weather, a rate change, a catch-up after estimated reads, a new tenant.
- Adjust the method for any account that misses in the same direction three months running.
Over a year, the comparison column becomes a record of how good your estimates are. It also catches billing problems. A bill that misses a sound estimate by a wide margin is often a bill worth reading line by line.
Post to the right cost center
An accrual that is right in total but wrong by site still causes a variance, just in someone else’s report. Each account needs a site, a cost center and a GL code, and that mapping has to stay current as sites open and close.
Our note on meter-to-site mapping explains how to build that list. Without it, the accrual can be accurate and still land in the wrong place.
A month-end checklist
- List every utility account and the last bill received for each.
- Count unbilled days per account, including any missing bill.
- Apply the method set for each account.
- Adjust demand-heavy accounts for where the peak is likely to fall.
- Adjust heating accounts for weather.
- Post by site, cost center and GL code.
- Record last month’s variance per account, with a reason.
Most of this list runs from one spreadsheet with one row per account. The first month is slow. By the third, it is a short task on the close calendar instead of the item everyone waits for.
Hand off the estimating
Finance teams that would rather review an accrual than build one can have it delivered. Bill Desk includes an accrual file each month: estimated cost for bills not yet received, by site and GL code, ready for close. Our page for finance and accounting teams explains how that file fits a close calendar. To see how your current bills would feed it, send three for a free Three-Bill Read.
