Assign Columns Warranty For Free

After your factory warranty expires, you may consider purchasing an extended warranty. Our research shows that a powertrain warranty costs $2,856 on average and adds anywhere from three to six years of coverage.

Multiply your warranty claim percentage by the amount of your sales in the current year to calculate your warranty reserve liability for the current year. For example, if you generated $100,000 in sales for the current year, multiply $100,000 by 0.02.

Accounting for warranties is quite similar to accounting for bad and doubtful debts. It is based on matching concept, which requires a company to estimate the expected warranty payable (also called warranty liability or provision for warranty expense) and record it at the time of sale.

The warranty shows the manufacturer's trust in the quality of their vehicles. The longer the warranty, the more committed the manufacturer is to their vehicles. Most modern cars manufactured today come with some warranty on the powertrain.

If you look at any used car at a major dealership these days, there's a good chance it comes with a powertrain warranty, which can run anywhere from 30 days to "lifetime.""It usually does not cover brakes, wheel bearings, and odds and ends of the car."

Warranty is the promise of the manufacturer or vendor with the buyer; therefore, it will be an expense for the company if a warranty is claimed.So, the warranty's accounting nature is an expense for the entity that will be debited to the company's accounts at the time of sale against the warranty provision 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.