State BPA Fundamental Accounting Practice Exam

Using EFT to make a payment for your electric bill will result in?

1. A credit to utilities expense and a debit to cash

2. A debit to utilities expense and a credit to cash

3. An increase in liabilities

4. A decrease in assets

The correct answer is: A debit to utilities expense and a credit to cash

Making a payment for your electric bill using Electronic Funds Transfer (EFT) involves a transaction where money is transferred directly from your bank account to the utility company. In this scenario, the utility bill represents an expense incurred by the household, which affects the income statement. When you record the payment of the electric bill, you recognize this expense by debiting the utilities expense account. This increases the overall expenses, reflecting that you have incurred a cost for using electricity. Simultaneously, because the money is being taken from your bank account, you need to credit the cash account, which decreases your assets. Cash is an asset account, and paying the bill means you have less cash available in your account. Thus, the transaction leads to a debit in the utilities expense, showing that you have incurred a cost, combined with a credit in cash, reflecting the reduction in your assets.