Accounting interview...?
General Motors Corporation reported $8.8 billion of product warranty surrounded by the Current Liability slice of a recent symmetry sheet. How would costs of repairing a defective product be record?
Answers:
When the provision for product warranty be created, the entry be:
Dr Product warranty expense (expense item)
Cr Prov. for product expense (balance sheet item)
Once the provision is set up, respectively time a return is made to repair a malformation, your reverse it from the provision a/c.
Dr Prov. for product expense
Cr Cash
As time go by, the match contained by the prov. a/c will fall down. At year-end, direction will assess how much the provision a/c requirements to be, and the first entry above is made again, to 'top-up' the provision explanation.
wouldn't that still be a liability because GM would inevitability to settle up for the repair not the customer
The warranty cost is the company's estimate of what it will own to settle during the current accounting length to service customer's warranty. Therefore this have already be record as a current time expense. The company debit an expense side and credited the liability.
When the company perform services below the warranty, the amounts spent on the services diminish the liability. For example, if the company pays a supplier $300 for warranty work, the money off surrounded by change is record by an equal narrowing within the warranty liability.
Debit accrue liability and credit labor and stuff.
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Answers:
When the provision for product warranty be created, the entry be:
Dr Product warranty expense (expense item)
Cr Prov. for product expense (balance sheet item)
Once the provision is set up, respectively time a return is made to repair a malformation, your reverse it from the provision a/c.
Dr Prov. for product expense
Cr Cash
As time go by, the match contained by the prov. a/c will fall down. At year-end, direction will assess how much the provision a/c requirements to be, and the first entry above is made again, to 'top-up' the provision explanation.
wouldn't that still be a liability because GM would inevitability to settle up for the repair not the customer
The warranty cost is the company's estimate of what it will own to settle during the current accounting length to service customer's warranty. Therefore this have already be record as a current time expense. The company debit an expense side and credited the liability.
When the company perform services below the warranty, the amounts spent on the services diminish the liability. For example, if the company pays a supplier $300 for warranty work, the money off surrounded by change is record by an equal narrowing within the warranty liability.
Debit accrue liability and credit labor and stuff.