Classify Highlight Warranty For Free

A warranty means that a manufacturer or seller will replace or repair an item under specific conditions and circumstances. Generally, the conditions and covered issues are outlined in the warranty document.

There are two types of warranty; express warranties and implied warranties, including merchantable warranties and warranties of fitness. The seller clearly states express warranties and covers goods advertised to meet consumers' expectations. They can be written or spoken warranties.

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.

The Equipment Warranties account would be considered a current asset because its benefits will be used up within the next twelve months. If the warranty were for 18 months, 12 months' cost would be considered a current asset and 6 months' cost would be a long-term asset.

Under the implied category are three major subtypes: the implied warranty of merchantability (only given by merchants), the implied warranty of fitness for a particular purpose, and the implied warranty of title.

A warranty is a contingent liability, so the party providing it should record a liability and warranty expense when it records the associated sale of goods or services. As the selling party incurs actual warranty costs, it charges them against the liability account.

There are many types of implied warranties including an implied warranty of merchantability, an implied warranty of fitness, an implied warranty of habitability (for a lease), and an implied warranty of marketability (for the sale of real property, also known as a marketable title).