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How do you account for warranty?
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.
What type of account is warranty expense?
Warranty Expense Recognition While recording the event in the financial statements, the company will debit (charge) the warranty expense account and credit (report) a liability account when the product is sold to a client.
What type of expense is warranty?
Definition: Warranty expense is the cost associated with a vendor or manufacturer's commitment to repair or replace a product, should it not perform as intended during a specified period of time. In other words, it's the cost of repairing or replacing defective products after they have been sold to customers.
Is warranty cost an expense?
Warranty expense is the cost that a business expects to or has already incurred for the repair or replacement of goods that it has sold. Accrue the warranty expense with a debit to the warranty expense account and a credit to the warranty liability account.
What type of account is warranty reserve?
Warranty Reserve is a fund maintained by the manufacturer to meet warranty expenses. The warranty reserve balance is the balance left after deductions of claim expenses for the year. The accrual rate is usually a fixed percentage of sales and is managed by the finance department of the company.
Is warranty an asset?
Current or Long Term Asset At the end of any financial year the amount of the extended warranty that will be used in the next 12 months is classified as a current asset and the amount to be used after 12 months is classified as a long term asset.
Is a warranty an asset?
At the end of any financial year the amount of the extended warranty that will be used in the next 12 months is classified as a current asset and the amount to be used after 12 months is classified as a long term asset.
What type of account is warranty?
warranty liability definition A liability account that reports the estimated amount that a company will have to spend to repair or replace a product during its warranty period.
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