Evergreen Roofing had cash sales for the month totaling $33,500.Evergreen offers a 1-year warranty on its roofing services.If Evergreen 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

Since the estimated warranty expense is an accrual, it should be recorded as a debit to Warranty Expense and a credit to Estimated Warranty Payable, which creates a liability on the balance sheet for the potential future warranty claims. Option A is incorrect because there is no cash involved in this transaction. Option B is incorrect because a warranty payable is a liability, not an expense. Option C is incorrect because it reduces sales revenue, which is not reflective of the accrued warranty expense.

Evergreen Roofing Had Cash Sales for the Month Totaling $33,500