The cost of a product warranty should be included as an expense in the a. period of the sale of the product. b. future period when the cost of repairing the product is paid. c. future period when the product is repaired or replaced. d. period the cash is collected for a product sold on account.

Question

Raquel Bentley

Business

6 December, 07:18

The cost of a product warranty should be included as an expense in the a. period of the sale of the product. b. future period when the cost of repairing the product is paid. c. future period when the product is repaired or replaced. d. period the cash is collected for a product sold on account.

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Larry Tanner · Answer 1

a. Period of the sale of the product.

Explanation:

Product warranty is a written assurance from the supplier or producer of a product or service to a buyer of the product or service promising to repair or replace a part or a whole of a product if it malfunctions within a specified period of time. The content of the warranty will specify the terms and condition of the warranty.

Accounting for warranty cost like any other expenses must follow the matching concept of accounting where expenses must be matched with the associated revenue.

Therefore the warranty cost must be reported in the financial year the sales was made not when the payment for the actual repair is made, except the entity is adopting cash basis accounting instead of accrual basis accounting.