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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.

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.

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.

Warranties are classified in two categories: assurance- and service-type. An assurance-type warranty guarantees that the product will function as intended. This type of warranty promises to repair or replace a delivered good or service if it does not perform as expected.

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.

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.

Warranties are classified in two categories: assurance- and service-type. An assurance-type warranty guarantees that the product will function as intended. This type of warranty promises to repair or replace a delivered good or service if it does not perform as expected.

Warranty revenue recognition: Types of Warranties On the other hand, service warranties are separate performance obligations because the seller provides distinct services beyond guaranteeing that the product will function as specified.