ACCOUNTING FOR WARRANTY COSTS.
Although the product warranty has been in effect for many years, it is surprising to note that the existence of these warranties has almost been completely ignored in accounting literature. Very few, if any, of the standard textbooks at any level discuss the accounting problems concerned with the cost of product warranties. In addition, very little has appeared in the journals of the accounting profession on this subject. Probably one reason for this lack of knowledge is the circumstances surrounding the warranty itself. The long-term product warranty started small and was considered to be of little consequence. As its applicability increased, it was still ignored. An investigation to discover the practices that various companies used to account for the warranty cost revealed that warranties fall into three categories. These three are the reimbursed warranty, sales warranty, and expensed-warranty. As charges occur in connection with the warranty, they are treated as an ordinary sale except that the deferred revenue account is reduced rather than a receivable being increased.
- DOI
- 10.2308/tar-7104477
- Volume
- 38 (3)
- Pages
- 577-578
- Language
- en
- Export
- BibTeX
- Sources
- openalex crossref