Classify Spreadsheet Warranty For Free

In accounting jargon, the assurance-type warranty is an example of a contingent that is both probable and can be estimated. Therefore, a company must record in the period of the sale the estimated cost of repairing or replacing the product during the warranty period.

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.

General Warranty Deed: the most common and most used Warranty Deed provides the buyer with the greatest protection. In this deed, the seller will warrant and defend against all claims whomsoever, which means if there are any issues with the marketability of the title, the buyer could hold the seller liable.

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.

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.

Types of Warranties. There are two general types of warranties, expressed and implied.

The warranty expense occurs because the sale took place. The expense is a cost of the sale and therefore should be matched with the revenue generated by that sale.

Definition of Product Warranty Liability Therefore, a company must record in the period of the sale the estimated cost of repairing or replacing the product during the warranty period. That expected cost is recorded as a liability on its balance sheet and as an expense on its income statement.

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.

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.