The accounting for warranty cost is based on the expense recognition principle which requires that the estimated cost of honoring warranty contracts should be recognized as an expense
A) when the product is brought in for repairs.
B) in the period in which the product was sold.
C) at the end of the warranty period.
D) only if the repairs are expected to be made within one year.

Question

Quizplus · Accepted Answer

The estimated cost of honoring warranty contracts should be recognized as an expense in the period in which the product was sold in accordance with the expense recognition principle of accrual accounting. This allows for the matching of expenses with revenues in the same accounting period.

The Accounting for Warranty Cost Is Based on the Expense