In May,Fish Nets,Inc.sold 8,000 nets with a three-month warranty for $10 each on account.Fish Nets estimates that warranty costs will be approximately $100 on these sales.The actual warranty cost for the sales made in May was $30 in June and $50 in July.Fish Nets should ________.

Question

Quizplus · Accepted Answer

Fish Nets should record the estimated warranty expense of $100 in May because accounting principles require that expenses be matched with the revenues they help to generate. In this case, the warranty expense is an estimated cost directly associated with the sales made in May, and it should be recognized in the same period as the sales, regardless of when the actual warranty costs are incurred.