Devery, Inc. sells high tech machine parts that are fully warranted against defects. Based on prior years experience they can expect to incur $20,000 of warranty expense on current sales. They are on the accrual basis, and the warranty expense is based on a reasonable estimate, so Devery can deduct the $20,000.

Question

Quizplus · Accepted Answer

Under the accrual basis of accounting, a business can only deduct warranty expenses in the year they are actually incurred, not when they are estimated or expected to occur.