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The key to proper revenue recognition for warranties is to first determine if the warranty provides a service to the customer beyond the required agreed-upon specifications. Next, the seller or company must allocate the price to both the product and separate warranty obligation based on standalone prices.

There are two general types of warranties, expressed and implied. Each category has different sub-types of warranties, with terms, conditions, and guarantees.

A warranty can be oral or written, and it is essentially a guarantee from the seller. Most consumer purchases are covered by warranties, even if they are not explicitly noted. Under the law, two types of warranties exist and are enforced via the Uniform Commercial Code (UCC): express and implied.

There are two types of warranties: express and implied. 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.

Types of Warranties. There are two general types of warranties, expressed and implied. Each category has different sub-types of warranties, with terms, conditions, and guarantees. Warranty terms can vary from free repairs on the defective product to complete replacement.

Most consumer products have an implied warranty of merchantability. This warranty makes the assumption that a good or product works for its intended purpose. It applies not just to new items, but to used items as well.

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).

Warranty Provision Definition Warranty provision is a liability of the business organization is to replace or repair the products which are found to be defective or have some issues after it was sold to the consumers. A business organization makes provision for the future cost the is known as warranty provision.

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.

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.