On 30 June 2019, a company estimates that it will incur warranty costs of $150 000 in the next financial year on products sold during the year just ended. What is the journal entry made on 30 June 2019 related to warranties?

Question

Quizplus · Accepted Answer

The correct journal entry to record an estimated warranty expense is to debit (increase) Warranty Expense and credit (increase) Warranty Liability. This reflects the company's expectation of future costs related to warranties on products sold, recognizing the expense in the same period the related revenue is recognized, in accordance with the matching principle.

On 30 June 2019, a Company Estimates That It Will