Intermediate Accounting, Wiley, 14th ed:
In general, costs incurred to achieve greater future benefits should
be capitalized, whereas expenditures that simply maintain a given
level of service should be expensed.
however, the book goes on and explains a situation where maintenance
that maintains the level of service is scheduled every three years.
The authors say that it's inappropriate to record a liability before
it has to pay to an outside party and so in that situation you don't
record it until you have to pay. YMMV.
The accounts for expensing:
Expense:Machine maintenance
Liability:Accounts payable:Machine maintenance
Later, when you actually pay:
Liability:Accounts payable:Machine maintenance
Cash
And if you overshot budgeted expenses:
Expense:Machine maintenance ; overshot amount
Liability:Accts payable:Machine maintenance
Cash
Alternatively, something like this:
Expense:Machine maint.:Estimated
Liability:A/P:Machine maint.
Expense:Machine maint. ;actual amount if overshot
Liability:A/P:Machine maint.
Cash
Expense:Machine maint.:Estimated ; close out the entire account balance
Note that if you're doing manufacturing maintenance expenses of the
equipment used to manufacture wind up in Cost of Goods Sold and so the
transactions are different.
On Sun, Apr 7, 2013 at 3:39 PM, Rick F <[email protected]> wrote:
> This is more a general accounting question than it is a Ledger question, per
> se, but it potentially uses ledger specific features like virtual accounts.
>
> How can I account for projected major maintenance that results from machine
> use? Every hour of machine operation builds up a liability for an eventual
> overhaul. Once the machine is overhauled, this liability needs to be zeroed
> out. How is this accounted for in a double entry system? At any given
> point in time I'd like to be able to see how much I should have set aside
> for the upcoming overhaul of the machine so I can check if I have the assets
> available. The other thing I'd like to keep track of is the eventual
> difference between projected and actual overhaul costs. Knowing this I know
> whether to bump up or down the per hour liability.
>
> Here are the basic transactions. How can they be extended to keep track of
> the money I need to have set aside for maintenance? Let's assume the
> machine needs to be overhauled every 100 hours of use and the projected
> overhaul cost is currently $1,000.
>
> 2013/04/05 Use the machine
> Expenses:Machine:Used 1 hour
> Assets:Fixed:Machine
>
> 2013/04/07 Repair the machine
> Expenses:Machine:Maintenance $1,234.56
> Assets:Current:Checking
>
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David Gilman
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