Overview

During the normal 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 expense are one such expense that is incurred by the company on a regular basis.

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 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 normally 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 hard.

Therefore, this is the amount that is normally deducted from the petty cash of the company, 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.

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Accounting Treatment for Repairs and Maintenance Expense

Repairs and maintenance expense is considered to be one of the operational expenses of the company, and therefore, it is categorized as a normal expense.

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.

On the other hand, unplanned repairs and maintenance expenses are expenses that occur on an unforeseen basis. For both of these types of repairs and maintenance-related expenses, they 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 therefore, as the amount increases, the relevant amount is debited in the Profit and Loss Account.

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

In the case where 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 in 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.

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Double Entry for Repairs and Maintenance Expense

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

ParticularDrCr
Repairs and Maintenance Expensexxx
    Cash 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.

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 expense, 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 cost 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