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Warranties

When a seller provides a warranty, an estimate is required to be recorded in the seller's liability account. This entry must reflect expected expense related to fulfilling warranty obligations by the company.


Example:


Company ABC sells a TV $200 and $10 one year extra warranty for that TV. The following entries would be made:


Dr. Cash $210

Dr. COGS $200

Cr. Revenue $200

Cr. Inventory $200

Cr. Warranty Provision $10


In a subsequent year, if a warranty claim was made the entry would be:


Dr. Warranty Provision $10

Cr. Warranty Repairs Expense $10


In a subsequent year, if warranty claim was not made the entry would be:


Cr. Warranty Provision $10

Dr. Warranty Revenue $10