Most assets depreciate as they near the end of their useful life. While companies account for it using depreciation, they have other costs associated with them as well. Specifically, the more a company uses an asset, the more it becomes prone to wear and tear. However, that does not imply the end of the asset's life.
Companies can still benefit from their existing assets by performing regular maintenance. On top of that, it may also be crucial to repair them sometimes in case of a breakdown. These expenses fall under repair and maintenance.
What is Repair and Maintenance Expense?
As the name suggests, this expense includes two prominent aspects, repairs, and maintenance. However, there is no standard definition of what this expense is. Repair and maintenance expense refers to the cost incurred by a company to repair, maintain or improve its assets. As stated above, almost every long-term tangible resource requires these costs at some point.
Companies incur repair and maintenance expenses for several reasons. Some of these include the following.
- Maintain assets in good working condition
- Restore the functionality or capacity of the assets
- Restore the asset’s useful life
Some examples of repair and maintenance expenses are as follows.
- Repairs to equipment or machinery
- Regular maintenance on vehicles
- Painting or remodeling of a building
- Landscaping or upkeep of a property
What is the accounting for Repair and Maintenance Expenses?
The accounting for repair and maintenance expenses involves recording the cost in the financial statements in the same period. Usually, these expenses get recorded in the income statement as an operating expense. For most companies, it appears under a line item, "Repair and maintenance expense". However, companies may also reclassify them if needed.
Repair and maintenance expense is different from capital expenditures. Those include expenses incurred to acquire or improve long-term assets. Accounting standards require capitalizing capital expenditures and recording them in the balance sheet. However, repair and maintenance expense is a revenue expenditure. Therefore, it gets recorded as an expense in the same period the company incurs it.
What is the journal entry for Repair and Maintenance Expense?
The journal entry for repair and maintenance expenses is straightforward. It requires a debit to the repair and maintenance account. However, the credit side may include some accounts based on how the company chooses to settle them. For most companies, repair and maintenance expenses are common and get paid through cash.
Nonetheless, a typical journal entry for repair and maintenance expenses looks as follows.
| Dr | Repair and maintenance expense |
| Cr | Bank or Cash or Accounts payable |
Companies may also have specific accounts for each repair or maintenance activity. However, they get presented under the same line item in the income statement.
Example
A company, Green Co., performs regular maintenance for its vehicles after three months. After each period, the company incurs $3,000 for this expense, which it pays in cash. Green Co. records the transaction as follows.
| Dr | Repair and maintenance expense | $3,000 |
| Cr | Cash | $3,000 |
Conclusion
Repair and maintenance expense is a revenue expenditure that companies incur regularly. It includes the cost of repairing, maintaining, or improving assets. However, companies must ensure any expenses classified as repair and maintenance do not fall under capital expenditure. The accounting for these expenses is straightforward, as stated above.
Originally Published Here: Repair and Maintenance Expenses: Definition, Example, Journal Entry, Accounting Treatment
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