List Initials Warranty For Free

Answer and Explanation: Explanation: Warranty expense should be recorded in the period that the product is sold. Under the matching principle, a warranty is an expense that is associated with the sale of an item covered by the 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.

Clarify what the warranty does and does not cover. Be specific when writing out exactly what the warranty does and does not cover. For example, if your product malfunctions, write out whether you will pay for new parts, as well as labor.

Additionally, companies record warranty expenses as debits to warranty expense accounts and as credits to liability accounts. When replacing a product, a company would deduct from both the inventory and liability accounts, as the replacement would come from the company's product inventory.

If you look at the journal entries below, when a company increases their warranty liability for new warranty claims, this is when the expense is recorded. When warranty claims are actually paid, there is no impact to the income statement. The impact is only to the balance sheet.

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.

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.

WTY stands for Warranty This definition appears very frequently and is found in the following Acronym Finder categories: Business, finance, etc.