Service Warranty Journal Entries

Lesson:

An service warranty is an extra purchase over and above an offering's price.

Assuming that there will be a reasonably estimable value for the warranty's ultimate cost to the vendor, it must be booked at time of sale.

You're an accountant trying to figure out how to book some assurance warranty information on the balance sheet.

Here are the relevant facts:

  • The purchase was made with credit.
  • The business accepted $1,911 in cash as payment for the service warranty.
  • The lifetime of the warranty is $3 years.
What are the initial journal entries to add this warranty sale to the balance sheet?

Answer:

  • Sales of a Service Warranty
    Accounts Receivable     $1,911.00    
         Unearned Revenue     $1,911.00    
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