All of the following statements related to recording warranty expense are true except:
A) Recording estimated warranty expense complies with the full disclosure principle.
B) Warranty costs are probable and the amount can be estimated.
C) Warranty expense should be recorded in the period when the warranty service is performed.
D) Recording estimated warranty expense complies with the matching principle.
E) The seller reports a warranty obligation as a liability.

Question

Quizplus · Accepted Answer

Warranty expense should be recorded in the period when the sale is made, not when the warranty service is performed. This is because accrual accounting requires expenses to be recognized in the period when revenue is recognized, in accordance with the matching principle. Therefore, warranty expenses are recognized in the same period as the sale that gave rise to the warranty obligation.

All of the Following Statements Related to Recording Warranty Expense