Recording Maintenance Plans and Warranties

by Angela
(London, ON, Canada)

Bookkeeping Entries for Warranties

Bookkeeping Entries for Warranties

What would the entry be to record payments received from customers for providing a one year, product maintenance plan/warranties?

section divider

Hi Angela,

I haven't done a lot with warranties, so I had to refer to my reference book, The Encyclopedia of Journal Entries published by the AIPB. (It is available for sale on their website.)

The encyclopedia shows it is a 2 step transaction.

Step One - To record the sale of the warranty requires you defer the revenue because it has not been earned yet ... which creates a liability:

DEBIT Cash in Bank (current asset on the balance sheet)

CREDIT Unearned Warranty Revenue (current liability on the balance sheet as you said this is a one year warranty)

Step two - Recognize the revenue on a straight-line basis over the life of the contract, which is one year in this instance. Therefore each month book 1/12th of the warranty amount as follows:

DEBIT Unearned Warranty Revenue (current liability on the balance sheet)

CREDIT Warranty Revenue (Income account on the P&L)

Next step - If a claim is made on the warranty, record the following:

DEBIT Warranty Expense (Expense account on the P&L)

CREDIT Materials and Parts (COGS)

CREDIT Wages Payable (Current liability on the balance sheet)

CREDIT Other Accounts as needed

CREDIT Cash in Bank (current asset on the balance sheet)

P.S. I would like to remind you there is a difference between information and advice. The general information provided in this post or on my site should not be construed as advice. You should not act or rely on this information without engaging professional advice specific to your situation prior to using this site content for any reason whatsoever.

Click here to post comments

Return to Small Business Bookkeeping.

Share this page:
Enjoy this page? Please pay it forward. Here's how...

Would you prefer to share this page with others by linking to it?

  1. Click on the HTML link code below.
  2. Copy and paste it, adding a note of your own, into your blog, a Web page, forums, a blog comment, your Facebook account, or anywhere that someone would find this page valuable.

Enjoy A Tea Break With
Me Today. Let's Chat!

Use the search feature to quickly find the
information you're looking for.

Your Learning Curve!


Warm up your tea cup and check out these chats ...

Click on image above to read the chat.

Join Me On Facebook

Help support this site by "liking" me! Here's where I post current information.

Listed Under Websites NOT Local Business.
This website is NOT associated with the business operating in Bonnyville AB.

A Handy Reference