Classify Email Warranty For Free

Use the following steps as a guide to account for warranty expenses: Find the total number of products sold.Determine the percentage of defective products.Calculate the number of products needing replacement.Evaluate the cost of product replacement.Estimate the total warranty expense.

Warranty expense is recognized in the same period as the sales for the products that were sold, if it is probable that an expense will be incurred and the company can estimate the amount of the expense.

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.

Additionally, companies record warranty expenses as debits to warranty expense accounts and as credits to liability accounts. When replacing a product, a company would deduct from both the inventory and liability accounts, as the replacement would come from the company's product inventory.

What is Warranty Expense? Warranty expense is the cost that a business expects to or has already incurred for the repair or replacement of goods that it has sold. The total amount of warranty expense is limited by the warranty period that a business typically allows.

The prepaid expense must be recorded as an expense based on the term of the warranty. The company needs to debit warranty expenses and credit prepaid expenses. Warranty expense will impact the income statement by deducting profit....Solution. AccountDebitCreditPrepaid Expense Warranty1,200Cash1,200

Warranty Expense Recognition While recording the event in the financial statements, the company will debit (charge) the warranty expense account and credit (accrue) a liability account when the product is sold to a client.