What is the effect of recording warranty expenses on the balance sheet and income statement?

• A. Decreases assets on the balance sheet and increases equity on the income statement.
• B. Increases liabilities on the balance sheet and decreases equity on the income statement.
• C. Decreases liabilities on the balance sheet and increases equity on the income statement.
• D. Increases assets on the balance sheet and decreases equity on the income statement.

Answer: (B)