Accounting for quality-assurance warranties includes a credit to warranty expense and a debit to contingent liability.

Question

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Accounting for quality-assurance warranties involves creating a contingent liability and crediting the warranty expense account. A contingent liability is a potential liability that will only become a liability if a future event occurs, such as the need for a warranty repair. Therefore, the entry would be a debit to warranty expense and a credit to contingent liability.

Accounting for Quality-Assurance Warranties Includes a Credit to Warranty Expense