During the first year of operations, a company granted warranties on its products at an estimated cost of $8,500. The product warranty expense should be recorded in the years of the expenditures to repair the products covered by the warranty payments. True/False?

Question

Business

Johanna Suarez

21 January, 20:38

During the first year of operations, a company granted warranties on its products at an estimated cost of $8,500. The product warranty expense should be recorded in the years of the expenditures to repair the products covered by the warranty payments. True/False?

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Answers (1)

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Annabella Booker · Answer 1

The given above statement is false.

Explanation:

The given statement is false because the warranty expense of $ 8,500 should be recorded in the first year of operations itself and this is due to the accounting principle named matching principle (according to which a company will report an expense on the income statement in the year in which income related to it was earned), so the warranty expenses related to sales made during a period will be recorded in same period as sales. Where as the expenditure to repair product will be debited to warranty liability account.