Estimated Liabilities for Warranties (Accounting) - Explained
What are Estimated Liabilities for Warranties?
Written by J. Mance Gordon
Updated at April 18th, 2024
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What are Estimated Liabilities for Warranties?
Warranties are a promise to repair, replace, or refund for products that do not perform as required or obligated. Businesses must set aside funds to cover these expenses. The amount is unknown, so it's estimated.
The matching principle applies. The seller reports the estimated warranty expense during the period in which the product is sold. You match the expense with the revenue generated.
How to Account for Warranties as Estimated Liabilities?
The below video explains how to account for the estimated expense for warranties.
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