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In this session, we will discuss guarantee and warranty cost. A warranty is a promise made by a seller to a buyer to ensure the quality, quantity, and performance of a product. It gives buyers assurance that the item will work as expected. Retailers or manufacturers provide warranties to encourage buyers to purchase items. Understanding guarantee and warranty is important as it follows the matching principle in accounting. For example, if a retailer makes a sale in year one, the warranty cost should be recorded in the same year to match expenses with revenues.
