What entry is required when a business estimates warranty payable each period based on sales revenue?
A) $\begin{array} { |l|}
\hline
Estimated ~Warranty ~Payable\
\hline
Warranty ~Expense\
\hline
\end{array}$
B) $\begin{array} { |l|}
\hline
Warranty ~Expense\
\hline
Sales\
\hline
\end{array}$
C) $\begin{array} { |l|}
\hline
Warranty ~Expense\
\hline
Estimated~ Warranty ~Payable\
\hline
\end{array}$
D) $\begin{array} { |l|}
\hline
Inventory\
\hline
Estimated ~Warranty ~Payable\
\hline
\end{array}$

Question

What entry is required when a business estimates warranty payable each period based on sales revenue?
A) $\begin{array} { |l|} 
\hline
Estimated ~Warranty ~Payable\
\hline
Warranty ~Expense\
\hline
\end{array}$
B) $\begin{array} { |l|} 
\hline
Warranty ~Expense\
\hline
Sales\
\hline
\end{array}$
C) $\begin{array} { |l|} 
\hline
Warranty ~Expense\
\hline
Estimated~ Warranty ~Payable\
\hline
\end{array}$
D) $\begin{array} { |l|} 
\hline
Inventory\
\hline
Estimated ~Warranty ~Payable\
\hline
\end{array}$

Quizplus · Accepted Answer

When a business estimates warranty payable based on sales revenue, it records an expense for the estimated cost of warranties (Warranty Expense) and creates a liability for the estimated amount to be paid in the future (Estimated Warranty Payable). This matches the expense with the revenue of the period in which the sales were made, adhering to the matching principle of accounting.

What Entry Is Required When a Business Estimates Warranty Payable \hlineEstimated Warranty Payable\hlineWarranty Expense\begin{array} { |l|} \hlineEstimated ~Warranty ~Payable\\\hlineWarranty ~Expense\\\hline\end{array}\hlineEstimated Warranty Payable\hlineWarranty Expense​​

What Entry Is Required When a Business Estimates Warranty Payable $\begin{array} { |l|} \hlineEstimated ~Warranty ~Payable\\\hlineWarranty ~Expense\\\hline\end{array}$