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0:29 2:05 Estimating Warranty Expense - YouTube YouTube Start of suggested clip End of suggested clip We would debit warranty expense for two thousand dollars which you get by doing two percent timesMoreWe would debit warranty expense for two thousand dollars which you get by doing two percent times the sales revenue. And credit warranty payable for two thousand. Dollars.

Hence, companies consider warranties as estimated liabilities. Estimated warranty liability is an expense that indicates the anticipated amount set aside for a company to fix, refund or replace a product during its warranty term.

To record the liability, the company would debit warranty expense and credit accrued warranty, which is a liability on the balance sheet. The purpose of this is to record the cost of the warranty in the same period that the revenue is recognized.

To record the liability, the company would debit warranty expense and credit accrued warranty, which is a liability on the balance sheet. The purpose of this is to record the cost of the warranty in the same period that the revenue is recognized.

Adjustments for Actual Costs: As warranty claims are made and the company incurs actual costs, the warranty liability account is reduced (debited) to reflect these actual costs. Corresponding credits go to cash, inventory, or accounts payable, depending on what resources are used to fulfill the warranty.

The provision of warranty support, however, is not directly connected to the production of the item. This means that it cannot be included under COGS. If the service is provided under an extended warranty, its costs will be classed under cost of revenue.

Accrue the warranty expense with a debit to the warranty expense account and a credit to the warranty liability account. As actual warranty claims are received, debit the warranty liability account and credit the inventory account for the cost of the replacement parts and products sent to customers.