QUESTION:

XYZ Ltd. has a provision for warranty costs that it recognizes in its financial statements. At the end of the year, the company estimates that it will need to spend $100,000 on warranty costs.

ANSWER:

The journal entry to record this is:

DR. Warranty provision (liability) $100,000 CR. Expense for warranty provision (expense) $100,000

Here's the tabulated working calculation for the journal entry to record the provision for warranty costs:

To record the provision for warranty costs, we need to debit the warranty provision account for the estimated amount of $100,000, and credit the expense for warranty provision account for the same amount.

The journal entry would be:

Debit warranty provision (liability) for $100,000

Credit expense for warranty provision (expense) for $100,000

Therefore, the journal entry to record the provision for warranty costs would be:

Warranty provision (liability) - $100,000

Expense for warranty provision (expense) - $100,000