When to Record Repair and Maintenance Costs as an Expense

Repair and maintenance costs are incurred in order to restore the condition of an asset. The proper accounting for these costs is to charge them to expense in the period incurred, when using the accrual basis of accounting. When using the cash basis of accounting, the cost is charged to expense when the associated supplier invoice is paid. In either case, the charge is to the Repairs and Maintenance Expense account.

Presentation of Repair and Maintenance Costs

The amount charged to repair and maintenance expense appears as an expense line item in the income statement, which appears in the selling, general and administrative section of the income statement. If the expense pertains to production operations, then it may be included in the factory overhead cost pool, in which case it will be presented as part of the cost of goods sold when the related products are eventually sold. If the products are not immediately sold, then the repair and maintenance expense may instead be initially incorporated into the ending inventory line item, which appears in the current assets section of the balance sheet.

When to Capitalized Repair and Maintenance Costs

When these costs either extend the useful life of an existing asset or increase its productive capacity, then they are considered to be capital expenditures instead. When this is the case, the cost is capitalized into a fixed asset, and then charged to expense over time through a periodic depreciation charge.

Example of the Accounting for Repair and Maintenance Costs

A manufacturing facility replaces an electric motor on one of its machines. This cost should be charged to expense at once, since the action taken only restores the condition of the machine. In addition, the facility installs a larger motor on another machine, to increase its capacity. This cost should be capitalized.