During August, Boxer Company sells $355,000 in merchandise that has a one year warranty. Experience shows that warranty expenses average about 3% of the selling price. The warranty liability account has a credit balance of $12,700 before adjustment. Customers returned merchandise for warranty repairs during the month that used $9,300 in parts for repairs. The entry to record the customer warranty repairs is:
The entry to record the customer warranty repairs is:
Debit " Estimated warranty liability " 9,300 $
Credit " Merchandise inventory" 9,300 $
(To record the returned merchandise for warranty repairs)
At the time of creating the expense, estimated warranty liability is credited.
When actual repair incurred, the estimated warranty liability is debited to reduce the balance.
The repairs will be done by use of inventory. So inventory balance will be reduced by repairs cost.
So, Merchandise inventory will be credited.
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