Why this is mistaken
Claim payments settle warranty obligations. They may relate to products sold in an earlier period, so they do not determine current warranty expense.
Under ASC 460-10-25-5 through 25-7, estimate qualifying costs of assurance promises using the applicable loss-recognition requirements. Reconcile beginning liability plus new expense and estimate changes, less settlements, to ending liability. Recording an accrual does not reserve cash in a separate account.
Where to watch
When this mistake may appear
- Claims paid during the year differ from the new provision.
Check your work
Your work may contain this mistake if:
- Current warranty expense is set equal to claims settled.