Obligations for Warranties – Current Liabilities

It is common business practice for companies to stand behind the quality of their products by offering assurances of repairs, replacements, and/or refunds in the event of product failures or customer dissatisfaction. The eventual costs of such obligations for warranties cannot be known with certainty at the date of sale, although most companies can make reasonable estimates; these costs are associated with current sales revenues. For revenues and expenses to be properly matched, the future costs of warranties and guarantees associated with the current period revenues must be estimated and recorded in the current period.

Show Buttons
Hide Buttons