Question

1:why are warranty liabilities usually recognized on the balance sheet as liabilities even when they are uncertain?
2:what are the three important question concerning the certainty of liabilities?

Answer 1

1.Warranty liabilities are recorded on the company's balance sheet even though they are uncertain as these are estimated liabilities and these may be incurred in the future due to an uncertain event,so in order to ensure the compliance of accounting principles of matching and full disclosure principle these are to be recorded on the balance sheet.As these principles require that the company should report its expected warranty expense in the period when revenue is generated,these are to be shown on the balance sheet even though their amount is not known,so a reasonable estimate based on past experience is to be taken.

2.The three important questions are:

1.Who must be paid?

2.How much is to paid?

3.When it is to be paid?