Warranty expense on goods sold should be recognized in the period of the sale, even though the costs to fulfill warranty claims will not be incurred until two or three years later.

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This is because warranty expense is considered a form of estimated future expense, and under the accrual accounting method, it should be recognized in the same period as the revenue it relates to. This is known as the matching principle, which states that expenses should be recognized in the same period as the revenues they help to generate. Therefore, even though the actual costs to fulfill warranty claims may not be incurred until later, the expense should still be recognized in the period of the sale.

Warranty Expense on Goods Sold Should Be Recognized in the Period