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In this session, we discuss guarantee and warranty costs. A warranty is a promise made by a seller to a buyer to ensure product quality. Retailers or manufacturers provide warranties to assure buyers of product performance. Guarantee and warranty costs are treated separately due to the importance of the matching principle. This principle ensures that costs are matched with revenue in the same period. For example, if a retailer sells an item for $10,000 in year one, the warranty cost associated with that sale is recorded in the same period to adhere to the matching principle.