Systematize Formula Warranty For Free

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.

By my calculations, a product with a 1 year warranty will be covered for 1 year. 1=1. Or 1 year=12 months=365 days=8760 hours. One with a 90 day warranty will be covered for 90 days.

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.

Calculate the number of products needing replacement Multiply the percent by the total number of products your company sells within the current warranty period. For example, the small business that sells diffusers can multiply the 2% defective rate by the 650 diffusers sold during the warranty period.

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.

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.

Ingly, the estimated costs are generally recorded as a liability when the reporting entity transfers the good or service to the customer. The cost is either the cost of repairing or replacing a defective good or reperforming a service.

A warranty expense refers to the cost that a company anticipates incurring for the replacement or repair of products customers purchase. Companies account for warranty expenses only during the established warranty period. After the warranty period expires, companies cease to incur the warranty expense.