Which of the following best describes the accrual method of accounting for warranty costs?
A) Expensed when paid.
B) Expensed when warranty claims are certain.
C) Expensed based on estimate in year of sale.
D) Expensed when incurred.

Question

Quizplus · Accepted Answer

Under the accrual method of accounting for warranty costs, the expenses are recognized based on an estimate in the year of sale. This estimate is made based on historical data and other relevant factors, and it allows for a more accurate picture of the company's financial situation. The actual warranty claims may be made in future years, but the expenses are recognized when the product is sold. This helps to match expenses with the revenue they generate, which is a key principle of accrual accounting.

Which of the Following Best Describes the Accrual Method of Accounting