Warranty Expense Accounting: Estimating Costs and Recording Journal Entries

What is the estimated cost of the warranty?

Based on the data provided, how can we calculate the estimated cost of the warranty?

Estimated Cost of the Warranty:

The estimated cost of the warranty can be calculated by multiplying the total cash sales for the month by the percentage set aside for warranty claims.

According to the data, Southeast Plumbing had cash sales for the month totaling $732,000. Southeast estimates warranty claims will equal 3% of sales. Therefore, the estimated cost of the warranty for the month would be: $732,000 x 3% = $21,960

Is the warranty payment credited or debited?

How should the warranty payment be recorded in the journal entry?

Warranty Payment Recording:

The warranty payment should be credited or debited in the journal entry?

When recording the warranty payment in the journal entry, a debit to the warranty expense account and a credit to the warranty liability account should be made to accrue the expense. Additionally, debit the warranty liability account and credit the inventory account for the cost of replacement products and parts sent to customers as actual warranty claims are received.