Enter Highlight Warranty For Free

We warrant the Product against defects in materials and workmanship under ordinary use for one year from the date of your original retail purchase from us, except that if the Product is a consumable product (for example, an ink cartridge), this limited warranty is null and void as soon as the consumable part of the

To estimate the warranty expense for a company, we need to know three main things: Number of units sold during a particular accounting period. Percentage of the sold products that will probably need a repair or a replacement based on previous experiences. Average cost of repairing or replacing products under warranty.

From an accounting perspective, if the Warranty is of assurance type, the Warranty's provision is credited at the time of product sales and debited at the time of warranty execution. On the other hand, in the service warranty case, the deferred income (liability) is credited against receipt of the cash.

Warranty costs and service agreement costs are not capitalized if the warranty costs or service agreement costs are listed as separate line items on the purchase orders or invoices. Otherwise, warranty costs and service agreement costs are capitalized with the value of the asset.

The costs associated with a manufacturer's product warranty are part of its selling expenses and therefore part of its SG&A expenses.

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 estimate the warranty expense for a company, we need to know three main things: Number of units sold during a particular accounting period. Percentage of the sold products that will probably need a repair or a replacement based on previous experiences. Average cost of repairing or replacing products under warranty.

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.

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.

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.