The accounting for warranty costs is based on the concept of matching expenses with revenues, which requires that the estimated cost of honouring warranty contracts should be recognized as an expense
A) when the product is brought in for repairs.
B) in the period in which the product was sold.
C) at the end of the warranty period.
D) only if the repairs are expected to be made within one year.

Question

Quizplus · Accepted Answer

The matching principle in accounting dictates that expenses should be recognized in the same period as the revenues they help to generate. Therefore, the estimated cost of warranty repairs should be recognized in the period in which the product is sold, ensuring that the cost is matched with the revenue from the sale.

The Accounting for Warranty Costs Is Based on the Concept