Question

When should costs of satisfying guarantees be recorded as expenses?

Answer 1

Costs of satisfying guarantees should be recorded as expenses when the company has incurred the expenses or can reasonably estimate the costs.

Step-by-step explanation:

Costs of satisfying guarantees should be recorded as expenses when the company has incurred the expenses or can reasonably estimate the costs.

For example, if a company offers a one-year warranty on its product and a customer makes a claim within that warranty period, the company would record the cost of satisfying that claim as an expense in its financial statements.

Another example is a company that offers a money-back guarantee. If a customer returns a product and the company issues a refund, the cost of the refund would be recorded as an expense.