Classify Payment Warranty For Free

Additionally, companies record warranty expenses as debits to warranty expense accounts and as credits to liability accounts. When replacing a product, a company would deduct from both the inventory and liability accounts, as the replacement would come from the company's product inventory.

Warranties will create a liability account when the costs are probable and if the cost of the warranty can be reasonably estimated. Warranty liabilities will thus, be considered contingent liabilities. Warranty expenses should be matched and recorded in the same period as their corresponding warranty revenues earned.

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.

There are two general types of warranties, expressed and implied. Each category has different sub-types of warranties, with terms, conditions, and guarantees. Warranty terms can vary from free repairs on the defective product to complete replacement.

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.

Warranty Payment means, with respect to a Distribution Date and to a Warranty Receivable to be repurchased, a payment equal to the Amount Financed on the related date of repurchase.

What is the journal entry to initially record a warranty? Warranties are recorded initially as a liability as it meets the definition of unearned revenue or deferred revenue. If the company charged $20 for a 2 warranty, that $20 would be collected at the time of sale.

Warranty expense is an expense related to the repair, replacement, or compensation to a user for any product defects. In other words, a vendor or manufacturer is committed to repair or replace a sold product during a certain time period if it breaks or does not function properly ing to the terms of the warranty.

The prepaid expense must be recorded as an expense based on the term of the warranty. The company needs to debit warranty expenses and credit prepaid expenses. Warranty expense will impact the income statement by deducting profit....Solution. AccountDebitCreditPrepaid Expense Warranty1,200Cash1,200

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.