Thank you for your reply! Although it clearly states in your lease that the tenant is responsible for utility bills, the payments more closely resemble "advance utilities". The treatment of "advance rents" is to record them as income when received, regardless of the period they cover. I do understand your position, but security deposits are the only case where the IRS states to not treat payments as income. In that case, they are intended to be returned to the tenant at the end of the lease (Pub 527 page 3). I would still recommend recording the utility payments as income when received and expenses when paid.
