What expense category is Rental Equipment?

In business, renting equipment can be a cost-effective way to access the tools and machinery you need without the upfront investment of purchasing. However, it's essential to accurately categorize and track these rental expenses for proper accounting, financial reporting, and tax purposes.

Rental Equipment in Accounting

Rental equipment falls under the broader category of operating expenses.  These are the ongoing costs a business incurs to run its daily operations.  They are distinct from capital expenses, which are investments in assets with a useful life of more than one year.    

How to Classify Rental Equipment Expenses?

The specific category for rental equipment expenses can vary depending on the nature of your business and the type of equipment rented. Some common classifications include:   

• Rent Expense: This is a general category for all types of rental payments, including equipment.
• Equipment Rental: This is a more specific category that directly identifies the expense as related to equipment rental.
• Cost of Goods Sold (COGS): If the rented equipment is directly used in the production of goods, the rental expense may be included in COGS. For example, a manufacturing company renting a specialized machine.   

The best way to categorize rental equipment expenses is to consult your company's chart of accounts or seek guidance from an accountant.

Some Examples of Rental Equipment Expenses

• Renting construction equipment like excavators, bulldozers, and cranes.
• Leasing office equipment such as computers, printers, and copiers.
• Renting vehicles for business use, including cars, trucks, and vans.
• Hiring specialized equipment for events or projects, like sound systems or lighting rigs.

Tax Implications of Rental Equipment Expenses

Rental equipment expenses are generally tax-deductible business expenses. This means you can deduct these costs from your business income to reduce your taxable profit. However, specific rules and limitations may apply, so it's crucial to consult a tax professional for advice.

How Fyle Can Automate Expense Tracking and Coding

Fyle is an expense management software that automates the process of tracking and categorizing rental equipment expenses, eliminating manual entry and reducing errors. With Fyle, you can capture receipts using text messages or everyday apps on your phone, and the AI-powered system will automatically categorize and code them. Fyle also generates detailed expense reports and integrates with popular accounting software, streamlining your financial processes and ensuring accurate record-keeping.