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What is a warranty liability and when should it be recorded in the financial statements?

Warranties will create a liability account when the costs are probable and if the cost of the warranty can be reasonably estimated. Warranty liabilities will thus, be considered contingent liabilities. Warranty expenses should be matched and recorded in the same period as their corresponding warranty revenues earned. Once actual warranty expenses are incurred, the liability will be reduced in the firm’s books.


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  • What is a warranty?

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  • What is the journal entry to initially record a warranty?

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