Warranty Expense Journal Entry for July Sales

Estimated warranty journal entry is calculated based on 4.5% of the sales price. In this case, Quantas Industries sold $325,000 of consumer electronics during July under a nine-month warranty.

4.5% of $325,000 = $14,625

Journal Entry:

DR: Warranty Expense - $14,625

CR: Warranty Payable - $14,625

This journal entry records the estimated warranty expense for the month of July.

When a company sells products with warranties, it needs to estimate the cost of warranty claims that might arise in the future. This estimated cost is recorded as a warranty expense on the company's financial statements.

In the case of Quantas Industries, they estimated that 4.5% of the sales price of $325,000 would be needed to cover warranty claims related to the consumer electronics sold in July. Therefore, the estimated warranty expense for July sales is $14,625.

The journal entry debits the Warranty Expense account and credits the Warranty Payable account with $14,625 each. This reflects the estimated cost of honoring warranty claims for the consumer electronics sold in July.

Recording estimated warranty expenses ensures that the company's financial statements accurately reflect the potential liabilities associated with product warranties and helps in better financial reporting and decision-making.