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To record the warranty expense, we need to know three things: units sold, the percentage that will be replaced within the warranty period, and the cost of replacement. First, calculate the number of units the company believes will need to be replaced under warranty.

A lifetime warranty is a guarantee that a manufacturer will repair or replace any defective parts for their products and comes at no additional cost. The ?lifetime? may reference the suggested lifetime of the product (when used as intended), or the time that the product is in production (or some years after that date).

For example, if a company sold a product for $100 and it includes a 2 year warranty that has a value of $20, the company would recognize $80 of revenue and $20 would be recorded to unearned warranty revenue.

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 lifetime in question is rarely the lifetime of the purchaser, but rather the length of time the manufacturer continues to make the product." In other words, the lifetime warranty of any product is only valid if the company remains in business. If the company dies, the warranty dies with it.

Warranty expense is an actual or expected cost that a business incurs to repair or replace the goods sold. The total amount associated is limited to the warranty period permitted by the business.

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.