Northwest Electric had cash sales for the month totaling $73,200.Northwest offers a 6-month warranty on its services.If Northwest estimates warranty claims will equal 2% of sales,the journal entry to record the estimated warranty expense for the month is:

Question

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The journal entry to record the estimated warranty expense for the month is to debit Warranty expense for $1,464 and credit Estimated warranty payable for the same amount. This is because the company estimates that it will have to pay out $1,464 (which is 2% of $73,200) in warranty claims, and this amount is recorded as a liability in Estimated warranty payable. The expense is recorded in Warranty expense to match the revenue earned in the same period. Neither cash nor sales revenue is affected by this transaction.

Northwest Electric Had Cash Sales for the Month Totaling $73,200