Classify Period Warranty For Free with DocHub and make the most of your documents

Aug 6th, 2022
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How to Classify Period Warranty For Free

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in this video were going to talk about how to accrue warranty expense in the financial statements so first of all its a good idea to have an understanding what warranty means and basically were talking about some kind of guarantee that a firm is making when you buy the product that there wont be any problems it wont break or if it does theyll actually replace the components that broke or the replace your computer whatever it is that you purchase so its some kind of guarantee about the workmanship so a firm here as you might see if they have a warranty they might have some kind of liability associated with that right because remember a liability is basically an obligation to sacrifice some assets at some point in time so when we have a warranty and we say ok you bought this computer but if it breaks it will replace it well give you another computer well we know theres some kind of obligation here so we have to determine well how do we account for this how do we put this in the

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The expense associated with a commitment to repair or replace a product for a specified period of time. The expense should be reported on the income statement at the time that the sale of the product is reported in order to comply with the matching principle.
Accounting for a Warranty Liability A warranty is a contingent liability, so the party providing it should record a liability and warranty expense when it records the associated sale of goods or services.
A warranty period is the period of time that warrant free repair and adjustment services in case of a malfunction occurred under normal use that has followed instruction manuals. The period varies ing to manufacturers, retailers, and products.
Warranty Expense means direct costs and Damages with respect to Warranty Claims but does not include costs associated with normal rework for customers incurred in the Ordinary Course of Business consistent with past practice and experience.
A warranty describes the conditions in which the seller is liable and what conditions are excluded. Although the buyer does not pay a separate cost for the warranty, the warranty price is included in the products price.
A warranty expense refers to the cost that a company anticipates incurring for the replacement or repair of products customers purchase. Companies account for warranty expenses only during the established warranty period. After the warranty period expires, companies cease to incur the warranty expense.
The original cost of an asset takes into consideration all of the items that can be attributed to its purchase and to putting the asset to use. These costs include the purchase price and such factors as commissions, transportation, appraisals, warranties and installation and testing.
With a full warranty, a company guarantees to repair or replace a faulty product during the warranty period. If the product is damaged or defective, companies offering a full warranty must repair or replace it within a reasonable time. A limited warranty works similarly, but with greater restrictions.
At the end of any financial year the amount of the extended warranty that will be used in the next 12 months is classified as a current asset and the amount to be used after 12 months is classified as a long term asset.
If the item is covered by warranty, the manufacturer will repair or replace it free of charge. If it isnt covered by warranty, you may be able to have it repaired for a fee.

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