If a company offers a warranty on the products it sells,the company records the warranty expense at the time that service is provided to customers under the terms of the warranty.

Question

Quizplus · Accepted Answer

Although the exact amount of future warranty claims is unknown at the time of the sale,the company must estimate the amount of the warranty liability and report the estimate in the financial statements that include the related sales.Recognizing this obligation increases liabilities (warranties payable)and reduces stockholders' equity (retained earnings).Recognizing the warranty expense reduces net income.

If a Company Offers a Warranty on the Products It