Maintenance Expense§
Maintenance expense refers to the costs incurred in carrying out any form of maintenance activity within a business. This includes the costs of labor, materials, and other resources required to maintain equipment, vehicles, or facilities in proper working condition. Maintenance expenses can be classified under various overhead categories depending on the nature and use of the assets being maintained.
Examples§
- Factory Maintenance: Costs associated with maintaining machinery, equipment, and tools in a factory setting. This would be classified as manufacturing overhead since it is related to the production process.
- Office Maintenance: Expenses incurred in maintaining office buildings, furniture, and equipment. This is categorized under administration overhead as it pertains to the administrative functions of the business.
- Salesmen’s Car Maintenance: Costs involved in maintaining vehicles used by sales personnel. These expenses fall under selling overhead because they facilitate the selling process.
- Distribution Vehicle Maintenance: Maintenance costs for vehicles used in the distribution of goods. These are considered distribution overhead as they pertain to the delivery of products to customers.
Frequently Asked Questions (FAQs)§
Q1: What is the difference between repair and maintenance expenses?
- A1: Repair expenses are generally incurred to restore an asset to its original condition after it has worn out or been damaged. Maintenance expenses, on the other hand, are recurrent costs incurred to keep an asset in working condition and to prevent it from breaking down.
Q2: How should maintenance expenses be recorded in financial statements?
- A2: Maintenance expenses are typically recorded as operational expenses in the income statement. They are not capitalized because they do not add value to or extend the life of the underlying asset.
Q3: Can maintenance expenses be capitalized?
- A3: Generally, routine maintenance expenses are not capitalized. Only major repairs that significantly extend the life or increase the value of an asset can be capitalized.
Q4: Are maintenance expenses tax-deductible?
- A4: Yes, maintenance expenses are typically tax-deductible as they are considered ordinary and necessary business expenses.
Q5: How do maintenance expenses impact a company’s profit margin?
- A5: Higher maintenance expenses can reduce a company’s profit margin as they increase the total operational costs.
Related Terms with Definitions§
- Manufacturing Overhead: The indirect costs associated with manufacturing, including plant maintenance, utilities, and factory supplies.
- Administration Overhead: Indirect costs related to the overall management and administration of a business, such as office maintenance and administrative salaries.
- Selling Overhead: Indirect costs related to the sales function of a business, including salesmen’s car maintenance and promotional expenses.
- Distribution Overhead: Indirect costs associated with the distribution of goods, such as maintenance of distribution vehicles and warehousing costs.
Online References§
Suggested Books for Further Studies§
- “Intermediate Accounting” by Donald E. Kieso, Jerry J. Weygandt, and Terry D. Warfield.
- “Financial Accounting” by Robert Libby, Patricia Libby, and Frank Hodge.
- “Managerial Accounting” by Ray Garrison, Eric Noreen, and Peter Brewer.
Accounting Basics: “Maintenance Expense” Fundamentals Quiz§
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