warranty - The Book-keepers Forum (UK)

elizabeth · Member

warranty

Rhianrach · Expert

Hi Elizabeth.

I'm generally wrong so take this with a pinch of salt, although it makes for an interesting debate. My opinion would be, it's a cost of sale so pop it in the 5000 range maybe 51**.

Wella · Expert

Hi Elizabeth

My view is that you could put it as a cost of sale, and it would be simpler but, I would be more inclined to put it as a direct expense, as any sale made is not directly dependant on the warranty activity. I would use the 62xx range.

Apart from statutory obligation, warranty could be seen as public relations exercise.

Warranties usually involve 3 parties, the customer, the supplier, and the manufacturer. Whereas guaranteess are between the supplier and the customer.

As you have said warranty, rather than guarantee, do you get re imbursed by the manufacturer for the faulty parts? That will make a difference too.

Bill

Rhianrach · Expert

Wella wrote:
Hi Elizabeth
My view is that you could put it as a cost of sale, and it would be simpler but, I would be more inclined to put it as a direct expense, as any sale made is not directly dependant on the warranty activity. I would use the 62xx range.
Apart from statutory obligation, warranty could be seen as public relations exercise.
Warranties usually involve 3 parties, the customer, the supplier, and the manufacturer. Whereas guaranteess are between the supplier and the customer.
As you have said warranty, rather than guarantee, do you get re imbursed by the manufacturer for the faulty parts? That will make a difference too.
Bill

Not one to argue with you Bill as your knowledge is more than enough to put me firmly in place, but in my view it's only an expense if people use it, also it's part of fulfilling your obligation of the sale, so therefore a cost of sale, but only in my view

That said the re-imbursement from the manufacturer is an extramely good point and if they were to re-imburse you in full regardless then it would be a balance sheet affair surely?

Wella · Expert

Feel free to argue with me Steve smile Healthy debate always makes me question my own view and forces me to either confirm my thoughts, or concede that I am wrong (graciously)

The reason I considered 62xx is that, although there is a link to a sale, a sale isn't dependant on offering a warranty. There is however a potential future obligation created by the past event. For me the 5xxx range are for direct costs of a sale, such as goods for resale, or labour costs (you can't sell something unless you bought it, and you can't service something without a labour cost), whereas the 6xxx range is for direct expense, which will only get used if a warranty rectification is carried out.

At the end of the day, either way would work OK, it is a case of the policy of the business, and consistancy.

A warranty rectification, is usually a sale, which is charged to the manufacturer. If it is necessary to replace a faulty part it is normal (certainly in the motor industry) that an invoice is raised against the manufacturer, and parts are supplied ususlly at cost plus a small handling %age, and labour at a usually lower than retail rate. (it is a little more complicated than that, as it is usually done on a "self billing" arrangement with dispensation to not account for VAT).

The same would be true if it was an insurance type of warranty.

Just food for thought

Speak later

Bill