Understanding Warranty Expense Accounting for Scout Company

Explanation:

Warranty Expense: A warranty is an expense to the business. According to the matching principle in accounting, expenses should be recognized in the period they are incurred. The amount set aside for warranty expenses is debited to the Product Warranty Expense account. This fund is reserved to cover any potential warranty claims that may arise in the future.

Calculating the Warranty Amount for Scout Company:

Sales: $15,000
Estimated Warranty Percentage: 5%
Warranty Amount = 5/100 x 15,000 = 0.05 x 15,000 = $750

Therefore, the journal entry for Scout Company to record the estimated warranty expense for the month of September will involve a debit to Product Warranty Expense for $750.

← What is an insurance company that conducts business in minnesota and was incorporated in minnesota called Bailments understanding the legal concept →

More Posts: