Assign Footnote 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.

The income statement is impacted by the full amount of warranty expense when a sale occurs, even if there are no warranty claims during the period and is part of COGS. When claims appear in subsequent accounting periods, the costs incurred will reduce the warranty liability account.

Yes. Extended product warranties and product maintenance contracts that are sold separately provide customers with a service and would represent a distinct performance obligation under ASC 606.

The expense should be reported on the income statement at the time that the sale of the product is reported in order to comply with the matching principle. A related account, Warranty Payable or Warranty Liability is also established at the time of the sale.

The costs associated with a manufacturer's product warranty are part of its selling expenses and therefore part of its SG&A expenses. If the future costs of the warranty coverage are probable and can be estimated, they are recorded at the time of the sale.

The provision of warranty support, however, is not directly connected to the production of the item. This means that it cannot be included under COGS. If the service is provided under an extended warranty, its costs will be classed under cost of revenue.

Explanation: Warranty expense should be recorded in the period that the product is sold.