A retail company issues numerous discount coupons throughout the year.What is indicated by a balance in the estimated liability account?

Question

Quizplus · Accepted Answer

A balance in the estimated liability account indicates the amount of coupons expected to be redeemed in the future. This account represents the estimated cost of fulfilling the discount offered to customers with the discount coupons. As the coupons are redeemed, the liability is reduced, and the corresponding amount is transferred from the liability account to the sales revenue account. If the company underestimates the number of coupons that will be redeemed, it may result in a higher liability than estimated, and if it overestimates, it may result in a lower liability than estimated.

A Retail Company Issues Numerous Discount Coupons Throughout the Year