The costs associated with a manufacturer’s product warranty are part of its selling expenses and therefore part of its SG&A expenses.
If the future costs of the warranty coverage are probable and can be estimated, they are recorded at the time of the sale. The accounting entry will debit Warranty Expense and will credit Warranty Liability. If the estimated warranty costs are recorded at the time of the sale, the actual costs of the repair work or the replacement of the product during the warranty period will be debited to the Warranty Liability account—thereby reducing the liability balance.
