Use Equation Warranty Gratis

in this video we're going to talk about how to acrw warranty expense in the financial statements so first of all it's a good idea to have an understanding what warranty means uh and basically we're talking about some kind of guarantee that a firm is making when you buy the product uh that there won't be any problems it won't break or if it does uh they'll actually replace uh the components that broke or they replace your your computer whatever it is that you purchase so it's some kind of guarantee uh about the workmanship so a firm here as you might see if they have a warranty they might have some kind of liability associated with that right because remember a liability is basically an obligation uh to sacrifice some assets at some point in uh in time so when we have a warranty and we say okay you bought this computer uh but if it breaks we'll replace it we'll give you another uh computer well we know there's some kind of obligation here so we have to determine well how do we account for this how do we put this in the financial statements how how do we recognize this warranty or a possible liability well basically we treat it uh like a contingency like a contingent loss and if you remember from our discussion on contingencies uh we know that we're going to acrw a contingent a loss contingency uh when it's both probable that that is the likelihood that we're going to incur a liability is probable and then also when it's reasonably estimable reason estimable so if we have no idea we can't estimate uh what the amount of the liability is uh then we're not going to to acrew anything uh in that case if we if we don't meet these two conditions uh what we're going to use for warranty expense is we're just going to use something called the cash bases which is really simple which is basically uh when there is that uh the the defect or some kind of problem where where the warranty needs to come into play for example customer buys a computer at breaks uh they send it back to us we have to send them a new computer uh we just go ahead and just uh debit ing to C basis we just debit warranty expense and then give them the new computer so we just kind of do it as it happens the uh so defective product comes in we make a journal entry uh but it's a little different when we when it's probable and reasonably estimable because then we can look forward to the future and say okay we know that we're going to have some warranty liability here we can estimate it so let's go ahead and ACR the liability before anyone actually sends in any defective products and that's what we mean by acre warranty expense and now let's let's let's kind of work through an example so we can see how we would go about doing that so let's return uh to our example of of a computer firm or a firm that sells computers um so let's say in January in January 2017 uh this firm sells uh $200 computers sells 200 computers for let's say $500 each for 500 each okay and then there's there there's a 2-year...