How a company estimates and records warranty liability and impact on cash flows

May 5th, 2015
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Understand how a company estimates and records warranty liabilities and when cash flow is impacted by warranty claims with very clear and understand manner with example.

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Question : Understand how a company estimates and records warranty liabilities and when cash flow is impacted by warranty claims?Answer: A business may have a warranty policy, under which it promises customers to repair or replace certain types of damage to its products within a certain number of days following the sale date. If the company can reasonably estimate the amount of warranty claims likely to arise under the policy, it should accrue an expense that reflects the cost of these anticipated claims.The accrual should take place in the same reporting period in which the related pro

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