Capitalized or Expensed Repairs

To record repairs correctly, the key is to determine if the expenditure creates a benefit in the period when it was made (expense it) or in future periods (capitalize it). 

To Expense Ordinary Repairs

Ordinary (recurring) repairs are those normally scheduled to maintain plant assets in operating condition. They are a period expense (charged in the period in which they occur), because the benefit of the repair is in a particular period. Examples include replacement of minor parts or repainting. 

The usual entry for an ordinary repair is:
- Debit: Repairs and Maintenance Expense
- Credit: Cash [or Payable account]

To Capitalize Extraordinary Repairs

Extraordinary (nonrecurring) repairs are of a material nature, such as a major overhaul or the repair of a breakdown of a major component of a piece of equipment. These must be capitalized (added to the equipment cost), because the benefit of the repair will extend beyond the current period. 

If the repair does not extend the useful life originally estimated for the asset, the entry is:
- Debit: Asset account
- Credit:Cash [or Payable account]

If the repair extends the originally estimated useful life, the entry is:
- Debit: Accumulated Depreciation
- Credit: Cash [or Payable account]


Mistakenly capitalized repair costs (when they should be expensed) results in assets being overstated (because the cost of the repair was added to an asset) and net income being overstated (because expenses were understated).

Mistakenly expensed repair costs (when they should be capitalized) results in assets being understated (because the cost of the repair was not added to the asset) and net income being understated (because expenses were overstated).