A company that sells trucks, and gives a five-year warranty, should report an estimated expense related to these warranties in the same period as the sales revenue, and should not wait to record an expense until it pays for the repairs.

Question

Quizplus · Accepted Answer

The expense related to warranties should be recognized in the same period as the sales revenue under the matching principle of accounting. Waiting to record an expense until it pays for the repairs would violate the matching principle.

A Company That Sells Trucks, and Gives a Five-Year Warranty