Account for Repair and Maintenance Expense – Overview, Journal Entries, and Example

Overview

During the ordinary course of business, there are certain routine expenses that are considered unavoidable. They are part and parcel of the operations of the company, and therefore, need to be paid by the company in order to ensure that there are no bottlenecks that hinder the performance of the company.

Repairs and maintenance expenses are one such expense that the company incurs regularly. Repairs and maintenance expenses basically include expenses that are incurred as a result of the machinery or other equipment within the company that needs to be kept in proper running condition with the company.

These expenses are considered to be unavoidable and are necessary to ensure the smooth functioning of operations without any machine breakdowns, and any relevant hiccups.

In this regard, these expenses are mainly categorized as periodic costs. They cannot be associated with one particular product, and the expense for repairs and maintenance highly varies from one year to another.

By the nature of repairs and maintenance-related expenses, it is seen that it is usually considered to be an expense that is a routine expenditure, and it cannot be predicted before it actually happens.

With routine maintenance, the amount is still predictable, but with unforeseen machine breakdowns, predicting the amount for these expenses is relatively complex.

Therefore, this is the amount that is usually deducted from the company’s petty cash since it is mostly not very substantial. However, it still needs to be accounted for in order to record those expenses in a proper manner.

Accounting Treatment for Repairs and Maintenance Expense

Repairs and maintenance expense is considered one of the operational expenses. It is recorded under the general and administrative expenses in the company’s profits and losses statement during the period when it is incurred. The increase of it is recorded as debit and decrease of it is records as credit.

Repairs and maintenance expenses can either be planned or unplanned. Planned repairs and maintenance expense means that companies now need to be incurred and carried out over the coming year.

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On the other hand, unplanned repairs and maintenance expenses occur on an unforeseen basis. Both these types of repairs and maintenance-related expenses are treated and categorized in the same manner.

Therefore, repairs and maintenance expense is mainly categorized as an expense account. The expenses are debit in nature, and accordingly, as the amount increases, the relevant amount is debited in the Profit and Loss Account.

Usually, organizations settle this amount in cash, and therefore, they barely have any prepaid or accrual balance at the year-end. However, in some instances, organizations do end up having either prepaid or accruing repairs and maintenance expenses.

If there are prepaid repairs and maintenance expenses, it means that the company has paid in advance, or has paid an excess amount to the supplier. In that particular case, it is treated as a Current Asset on the Balance Sheet.

On the contrary, it can further be seen that in the case where there is a pending balance of Repairs and Maintenance that needs to be settled before the year-end, there is a need to include that as Current Liabilities in the final year statements.

Double Entry for Repairs and Maintenance Expense

To record the repair and maintenance expense when it is incurred, the following journal entry is made:

ParticularDrCr
Repairs and Maintenance Expensexxx
    Cash/ Accrue/Account Payable xxx

Since the repairs and maintenance account is paid in the year where it is due, it is supposed to be expensed and written off at the end of the year.

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Therefore, in order to settle the amount that has been carried out as an expense at the end of the year, the following journal entry is made:

ParticularDrCr
Income Statementxxx
       Repairs and Maintenance Expense    xxx

Example

In order to explain and further classify the treatment of repairs and maintenance expenses, the following illustration is provided:

Kemp Co. is a manufacturing concern. Over the course of the year, they incurred $25,000 as repairs and maintenance expenses.

However, they got into an agreement with the supplier that they would pay $15,000 as repairs and expense costs upfront, and the remaining amount would be settled in the next year.

In order to record the above transaction in the financial statements, the following transactions need to be made:

ParticularDrCr
Repairs and Maintenance Expense25,000
    Cash 15,000
Current Liability 10,000

In the same manner, it can be seen that at the year-end, the following journal entries need to be made:

ParticularDrCr
Income Statement25,000
Repairs and Maintenance Expense 25,000