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In this session, we will discuss guarantee and warranty costs. A warranty is a promise made by a seller to a buyer to make the buyer whole in case of product deficiency. This assurance is provided by the retailer or manufacturer to encourage purchases. Guarantee and warranty are treated separately in accounting due to the matching principle, ensuring expenses are matched with revenues in the same period. For example, if a retailer sells a product for ten thousand dollars in year one, the warranty costs associated with that sale are recorded in the same period.
