Lay Initials Warranty For Free

What is the journal entry to initially record a warranty? Warranties are recorded initially as a liability as it meets the definition of unearned revenue or deferred revenue. If the company charged $20 for a 2 warranty, that $20 would be collected at the time of sale.

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.

Recording Warranty Expense If a company provides a warranty on the product, they should repair or replace it if it's defective. It creates a liability when the particular product is sold as the company has a liability, which starts when the product is sold.

This measure calculates the amount of revenue that is set aside to pay warranty claims in the 12-month period as a percentage of total business entity revenue for the period.

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.

Typically, purchased assets have some type of standard warranty (frequently, one year). Extended warranties (two to five years) are not included in the capitalization process. Therefore, the warranty cost should be charged to another appropriate expense account.

Warranty expense is recognized in the same period as revenue for the sold products if there is a probability that an expense will be incurred and if the company can estimate the amount of the expense.

Warranty expense is recognized in the same period as revenue for the sold products if there is a probability that an expense will be incurred and if the company can estimate the amount of the expense.