The operations of XY are seasonal; therefore, XY defers as much routine machinery maintenance as possible to the next slack season. Repair expense, however, is accrued monthly in an Allowance for repairs account. The balance accumulated in the Allowance account until shortly before the slack season should be reported as a:

Question

Quizplus · Accepted Answer

Since the repairs are expected to be made in the near future, the balance in the Allowance for repairs account should be reported as a current liability. This is because it represents an obligation that must be paid within the next year. Choosing a long-term liability, deferred charge, or deferred credit would not be appropriate in this case. Valuation against machinery also would not be the correct choice as it does not reflect an obligation that must be paid to a third party.

The Operations of XY Are Seasonal; Therefore, XY Defers as Much