Which of the following is true about the initial journal entry used to record quality-assurance warranties?
A) Option A
B) Option B
C) Option C
D) Option D

Question

Which of the following is true about the initial journal entry used to record quality-assurance warranties? 
A) Option A 
B) Option B 
C) Option C 
D) Option D

Quizplus · Accepted Answer

The initial journal entry used to record quality-assurance warranties would credit Sales Revenue and debit Warranty Liability. This is because the company has sold a product and recognized revenue for it but also has an obligation to provide warranty services for that product. By debiting Warranty Liability, the company is acknowledging that it has a future obligation to provide these services and is setting aside funds to cover those costs. Option A and Option B are incorrect because they do not account for the warranty liability. Option D is incorrect because it does not follow the matching principle of recognizing expenses in the same period as the related revenues.

Which of the Following Is True About the Initial Journal