Classify Warranty For Free

Types of Warranty. 1) Implied Warranty. a) Warranty of Merchantability. b) Warranty of Fitness For A Particular Purpose. c) Warranty of Title.

17 September 2012 The cost of extended warranty should not be capitalised as this substitutes a revenue expenditure on maintenance and repairs of such items. hence this should be treated as a prepaid expenditure and charged off to the income statement over the warranty period.

A warranty is a term in a contract that is more like a promise by one party than a condition agreed upon by both parties.If the other party considers the warranty by one party important enough, then it could be classified as a condition. Generally, however a warranty is usually only a statement of facts.

Warranty Amortization You reduce, or amortize, the warranty liability as you receive warranty claims. The accounting entry is a debit to warranty liability and a credit to inventory or cash for the warranty costs in the period. You book no new expense when you repair or replace a warrantied item.

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.

What Is a Warranty? A warranty is a type of guarantee that a manufacturer or similar party makes regarding the condition of its product. It also refers to the terms and situations in which repairs or exchanges will be made if the product does not function as originally described or intended.

Warranty is the promise of the manufacturer or vendor with the buyer; therefore, it will be an expense for the company if a warranty is claimed. So, the warranty's accounting nature is an expense for the entity that will be debited to the company's accounts at the time of sale against the warranty provision account.