Categorize Highlight Warranty For Free

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.

Warranty expense is the cost associated with a defective product repair, replacement, or refund. A warranty comes with a warranty period during which the vendor or manufacturer of the good is liable for any defects that may appear during the use of the product.

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.

Warranty is provided on an item to establish trust and it works as a marketing tool to attract buyers, thus making it a part and parcel of every business. Hence, warranty is the future expense of a manufacturer which he may or may not incur.

If you have multiple categories, mention the list of products and what warranty period exists for each. An example can be: The Warranty Period for Physical Goods purchased from My Company is 180 days from the date of purchase.

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.

In essence, warranty expense is a provision or reserve that the company sets aside to meet its future obligations related to product warranties. This expense is a liability on the balance sheet and an operating expense on the income statement.