Monthly sales were $150,000. Warranty costs are estimated at 5% of monthly sales. In the month of sale, the company should record a debit to:

Question

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The company should record a debit to Warranty Expense for $7,500. This is because the estimated warranty cost is a known expense that should be recognized in the month of sale, even though the actual liability amount is not yet known. The entry would be: Warranty Expense (debit) $7,500 and Warranty Payable (credit) $7,500 at the end of the month. Option A is incorrect as Warranty Payable should be credited, not debited. Option C is incorrect as sales should not be debited for warranty costs. Option D is incorrect as an estimated liability exists and should be recognized through the appropriate expense account.

Monthly Sales Were $150,000