Equipment Rental Bookkeeping: Tracking Assets, Rentals and Damage Fees

What equipment rental books need to track

An equipment rental business is not one number. It is the gear you own, the rentals you send out, the deposits you hold, the damage fees you charge, and the cash that comes back. Each part needs its own line so your monthly income stays true.

When you track all of it by item, you can see which pieces of gear pay for themselves and which ones sit on the shelf. You can see which rentals come back damaged and which ones come back clean. When you do not, you get one big pile of deposits and repair bills and no way to tell whether the skid steer earned its keep or the generator paid for its own repairs.

Equipment rental covers a lot of trades. Party rentals, construction equipment, tool rental, event tents, bounce houses, scaffolding, trailers. You buy the gear. You rent it out. The client pays you a rental fee and a deposit. They use the gear. They bring it back. If it comes back damaged, you keep part of the deposit and send a repair bill. When the books hold the asset apart from the income and the deposit apart from both, your business makes sense. You can read more about how we keep these lines tied on our bookkeeping page.

Here is what a clean rental looks like.

When the rental income and the deposits sit on their own lines, your monthly profit is real. When they sit together, a big deposit looks like income and the real rental earnings hide.

How rental assets show up in your books

A rental asset is gear you buy to rent out. A skid steer, a scissor lift, a tent, a trailer. The gear costs money to buy and earns money over time. It needs to sit on your books as an asset, not as a cost.

The clean way is to book each piece of gear as a fixed asset on the balance sheet. You depreciate it over time. The gear shows on the books at its value. The rental income shows on the profit and loss. You can see what each item earned this month and what it is still worth. When you sell the gear or scrap it, you remove it from the asset account and record the sale or the loss. You can read more about how we track equipment assets in our concrete and masonry equipment guide. The same idea works for any rental gear.

The messy way is to expense the gear the day you buy it. Now the month you buy a skid steer looks like a terrible month. The next month, with no big purchase, looks like a great month. The gear does not show on the balance sheet at all. You can not tell what your gear is worth or how much each piece has earned.

Here is how to keep the asset clean.

• **Book rental gear as a fixed asset: ** not as a supplies cost.
• - **Depreciate the gear over its useful life: ** so the cost spreads out over time.
• - **Track each asset by item or tag: ** so you can see what each piece earned.
• - **Remove the asset when you sell or scrap it: ** and record the sale or the loss.
• - **Watch the asset value against the rental income: ** so you can see which gear pays for itself.

When the gear sits on the balance sheet, your rental income is true. When it goes straight to a cost, the month you buy looks bad and the month you rent looks great.

How rental income shows up by item

Rental income is what the client pays to use the gear. Each rental ties to an item and a client. The income needs its own line so you can see what each piece of gear earns.

The clean way is to book each rental payment to a rental income line tagged to the item and the client. When you run the profit and loss by class or by item, each piece of gear shows its own income total. You can see which items rent every week and which ones sit in the yard. You can see which items earn the most and which ones need the most repairs. You can read more about how we tie income to the right line in our fence and deck builder guide. The same idea works for a rental business.

The messy way is to book every rental payment to one general sales line with no item tag. Now you can not sort by gear. You can not tell if the skid steer earns more than the scissor lift or if the tent is paying for its own repairs. The income sits in one pile and the story hides.

Here is how to keep the rental income clean.

• **Book rental income to a rental income line: ** not to general sales.
• - **Tag each rental to the item and the client: ** so the income sorts by gear.
• - **Track the rental days per item: ** so you can see how often each piece goes out.
• - **Watch the income per item against the asset value: ** so you can see which gear pays for itself.
• - **Match each rental payment to the bank: ** so the cash is true.

When the rental income ties to the item, your per item profit is real. When it floats in a general pile, you can not tell which gear earns its keep.

How deposits show up apart from income

A deposit is cash you hold until the gear comes back. The deposit is not income. It is a liability. You owe it back to the client when the gear returns clean.

The clean way is to book the deposit to a deposit liability account when it arrives. The cash lands in your bank. The deposit sits on your balance sheet as a liability, not as income. When the gear comes back clean, you return the deposit and the liability drops to zero. When the gear comes back damaged, you keep part of the deposit and move it to a damage fee income line. You can read more about how we handle held cash in our reconciling rents and security deposits guide. The same idea works for a rental deposit.

The messy way is to book the deposit straight to income the day it arrives. Now your income looks great the week the deposit comes in and wrong the weeks you hold it. When you return the deposit, it looks like a cost instead of a return of held cash. You can not tell what you earned and what you still owe back.

Here is how to keep the deposit clean.

• **Book the deposit to a liability account: ** not to income.
• - **Return the deposit when the gear comes back clean: ** and drop the liability to zero.
• - **Keep part of the deposit for damage: ** and move it to a damage fee line.
• - **Track the deposit balance by client: ** so you know what you still owe back.
• - **Match the deposit to the bank: ** so the cash is true.

When the deposit sits in a liability account, your income is true. When it goes straight to income, the books look good the week the deposit comes in and wrong the weeks you hold it.

How damage fees show up on their own line

A damage fee is what you charge when the gear comes back broken or missing parts. It is real income, separate from the rental fee. It needs its own line so you can see how much the repairs cost you over time.

The clean way is to book the damage fee to a damage fee income line when you keep part of the deposit. The repair bill goes to a repair cost line tagged to the item. When you run the profit and loss, the rental income and the damage fees sit on separate lines. You can see which items come back damaged most often and whether the damage fees cover the repair bills. You can read more about how we track repair costs in our tree service equipment guide. The same idea works for rental gear repairs.

The messy way is to book the damage fee to the same line as the rental income. Now you can not tell how much of your income is rentals and how much is damage fees. A month with a lot of damage fees looks like a great month for rentals, even though the gear is getting beat up. You can not see which items cost you the most in repairs.

Here is how to keep the damage fee clean.

• **Book damage fees to a damage fee income line: ** not to rental income.
• - **Book repair bills to a repair cost line: ** tagged to the item.
• - **Watch the damage fees per item: ** so you can see which gear takes the most abuse.
• - **Compare the damage fees to the repair costs: ** so you can see if the fees cover the repairs.
• - **Match the kept deposit to the bank: ** so the cash is true.

When the damage fees sit on their own line, you can see what the gear really costs you. When they hide in the rental pile, the wear and tear on your fleet is invisible.

How to match each rental to the bank

Every rental payment has to match the bank. The client pays you. The cash lands in your account. The books need to tie the two together.

The clean way is to match each rental payment to the bank deposit the day it clears. The amount in the books agrees with the amount that hit the bank. When a client pays on a card, the deposit lands net of the card fee. When a client pays in cash, the deposit lands whole. When a deposit refund clears, it drops the liability and the bank agrees. The bank and the books always agree.

The messy way is to book the payment and never match it. Now the books show income that may or may not have cleared. A refund that bounced sits as a liability that never went away. A card fee that came out before the deposit hides. You can read more about how we match payments to the bank in our reconciling shop management software guide.

Here is how to keep the match clean.

• **Match each rental payment to the bank deposit: ** the day it clears.
• - **Watch for card fees: ** a card payment lands net, so split the fee out.
• - **Match each deposit refund to the bank: ** so the liability drops when the cash goes back.
• - **Reconcile the bank each month: ** so the cash total agrees with the bank.
• - **Check the deposit liability against open rentals: ** so no held cash gets lost.

When each rental matches the bank, your cash is true. When they float untied, the income drifts and the real profit hides.

How the month end close works

At month end, every rental and every item needs its lines added up. The rental income, the deposits held, the damage fees, the repairs and the asset values all pull together. The income shows what you earned. The costs show what the gear took. The net shows what the fleet really made.

We start with the bank. We match each rental payment to the deposit that cleared. We split the card fees from the net cash. We book the rental income to the rental line tagged to each item. We book the deposits to the liability account and the damage fees to their own line. We book the repair bills to a repair cost line tagged to the item. We check the deposit liability against the open rentals. We send you the profit and loss by item, a balance sheet, and a cash summary. Each piece of gear sits inside the report in its own column.

Here is a simple month end check.

• **Match each rental payment to the bank: ** every deposit cleared.
• - **Split the card fees from the net cash: ** so the fee shows on its own.
• - **Book deposits to the liability account: ** so the held cash is tracked.
• - **Book damage fees and repairs to their own lines: ** tagged to the item.
• - **Check the deposit liability against open rentals: ** so no held cash gets lost.
• - **Run the profit and loss by item: ** so each piece of gear shows its own column.

When the close runs every month, the gear story stays clear. When it skips a month, the deposits stack up and the next month is harder to close.

A situation we clean up

The deposits that all looked like income

An equipment rental shop rents out forty pieces of gear. Every deposit goes straight to income the day it arrives. The rental income and the deposits share one general sales line. The gear was expensed the day it was bought. The repair bills go to general repairs with no item tag. At month end, the owner can not tell what each piece of gear earned, what deposits are still held, and whether the damage fees cover the repair bills. A month with a lot of new deposits looks like a great month even though the gear is getting beat up.

Here is how we handle it. We set up a deposit liability account and a damage fee income line in QuickBooks Online. We go back through the open months and move each deposit from income to the liability account,(ml-account) tracked by client. We book each rental payment to a rental income line tagged to the item. We book the repair bills to a repair cost line tagged to the item. We move the gear purchases to fixed assets on the balance sheet. We match each rental payment to the bank. When we are done, the owner can run the profit and loss by item and see each piece of gear in its own column, with the rental income, the deposits and the damage fees on separate lines. We set up a rule so the next deposit goes to the liability account and the next rental goes to the rental income line from the start.

Mistakes we fix

• Every deposit booked as income the day it arrives instead of as a liability
• No deposit liability account set up at all
• Rental income and damage fees in the same pile so the wear on the gear hides
• Gear expensed the day it is bought instead of booked as a fixed asset
• No item tag on rentals or repairs so no way to sort by gear
• Repair bills in general repairs instead of a repair cost line tagged to the item
• No match between the rental payment and the bank deposit
• A deposit refund that bounced still sitting as a liability that never cleared
• Card fees buried inside net sales instead of on their own line
• No profit and loss by item run at month end

Common questions

How do I record a rental deposit? Book the deposit to a deposit liability account when it arrives, not to income. When the gear comes back clean, return the deposit and drop the liability to zero. When the gear comes back damaged, keep part of the deposit and move it to a damage fee income line. The balance sheet shows what you still owe back.

How do I track rental income by item? Book each rental payment to a rental income line tagged to the item and the client. Run the profit and loss by class or by item so each piece of gear shows its own income total. Compare the income to the asset value so you can see which gear pays for itself.

How do I handle damage fees? Book the damage fee to a damage fee income line when you keep part of a deposit. Book the repair bill to a repair cost line tagged to the item. Watch the damage fees per item so you can see which gear takes the most abuse and whether the fees cover the repairs.

How do I match a rental payment to the bank? Match each rental payment to the bank deposit the day it clears. Match each deposit refund to the bank so the liability drops when the cash goes back. Reconcile the bank each month so the cash total agrees with the bank.