Estimated Liabilities: Warranties definitions Flashcards
Estimated Liabilities: Warranties definitions
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Warranty A guarantee provided with a product sale, assuring customers of product quality and covering potential repair or replacement costs. Estimated Liability An obligation recorded on the balance sheet for future costs that are probable and can be reasonably estimated, such as warranties. Contingent Liability A potential obligation dependent on the outcome of a future event, like a product breakdown triggering warranty coverage. Matching Principle An accounting rule requiring expenses to be recognized in the same period as the revenues they help generate. Warranty Expense The estimated cost of fulfilling warranty obligations, recorded in the same period as the related product sales. Estimated Warranty Payable A liability account representing the expected future costs of warranty claims based on current sales. Percentage of Sales Method An estimation technique using a fixed percentage of sales to determine expected future costs, such as warranty expenses. Allowance for Doubtful Accounts A contra-asset account estimating uncollectible receivables, conceptually similar to estimating warranty liabilities. Revenue Recognition The process of recording income when it is earned, typically at the point of product sale. Balance Sheet A financial statement displaying a company's assets, liabilities, and equity at a specific point in time. Liability An obligation arising from past transactions, requiring future economic sacrifice, such as payment for warranty claims. Expense Recognition The process of recording costs in the period in which they contribute to generating revenue, as with warranty expenses. Product Replacement The act of providing a new item to a customer under warranty terms when the original product fails. Repair Cost The expenditure incurred to fix a defective product under warranty coverage. Journal Entry A formal accounting record documenting the financial impact of transactions, such as warranty expense and liability recognition.
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