Southeast Plumbing had cash sales for the month totaling $732,000. Southeast offers a 6-month warranty on its services. If Southeast estimates warranty claims will equal 3% of sales, the journal entry to record the estimated warranty expense for the month is:

Question

Quizplus · Accepted Answer

The journal entry to record the estimated warranty expense for the month is to debit Warranty expense and credit Estimated warranty payable. This is because the estimated warranty expense is an expense that needs to be recognized in the current period, and the estimated warranty payable is a liability that needs to be recorded for the estimated cost of future warranty claims. The other options are not correct because Cash and Sales revenue are not affected by the estimated warranty expense, and debiting Warranty expense and crediting Warranty expense would result in a net zero impact on the financial statements.

Southeast Plumbing Had Cash Sales for the Month Totaling $732,000