how a company should account for warranty cost?. What are premiums and coupons as issued by a company? How do you measure and account for the cost of premiums and coupons?
ACCOUNTING OF WARRANTY COST:
Warranty is a type of guarantee that the manufacturer of product will replace or repair for a certain time. It is an expense that has not happened yet. following step are followed:
step 1 : calculate the warranty expense
step 2: record the warranty expense as under
debit the warranty expense and
credit the expected warranty liability
step 3: record the warranty claim
debit estimated warranty liability
FOLLOWING ARE THE PREMIUMS AND COUPONS ISSUED BY A COMPANY.
Companies charge some cost of coupons and premiums to expense. many companies offer limited or continuing basis premium to its clients in return. that premium may be dishes, some silverware, toys or may be any other items. some printed coupons can be redeemed for cash discounts on purchasing some items. premium coupon offers stimulated sales and its cost to be charged to expense. some of the examples of premium and coupon are:
silverware, dishes, a toy, small electronics, free transportation, labels, wrappers, certificates etc
ACCOUNTING FOR PREMIUM AND COUPONS
Companies should first estimates the number of outstanding premium that are offered to customers will present for redemption. campanies chages the cost of premium offers to premium expense and then credit estimated liability for that premium.