Question

A company estimates that warranty expense will be 7% of sales. The company's sales for the current period are $315,000. The current period's entry to record the warranty expense is ________.

Answer 1

Dr Warranty expense $22,050

Cr Warranty expense liability $22,050

Step-by-step explanation:

Warranty expense is a liability that may be incurred by a business or firm due to the outcome of an unpredictable future events. It is a contingent liability

Given that ;

Current sales = $315,000

Warranty expense = $22,050 (7% of $315,000)

As a rule in accounting, debit increases assets and expenses while credit reduces assets and expenses.

Also, credit increases stock, sales revenue and liabilities while debit reduces them.

The entry is;

Dr Warranty expense $22,050

Dr Warranty expense liability $22,050