Warranty Provisions Account: A Closer Look
What is the balance in the Warranty Provisions account at the end of Year 5?
Are you curious to know how the balance in the Warranty Provisions account is calculated at the end of Year 5?
The balance in the Warranty Provisions account at the end of Year 5 is $40K.
Are you ready to dive into the world of Warranty Provisions and understand how the balance is determined at the end of Year 5? Let's break it down for you!
Firstly, let's look at the data provided:
- Year 1: $1,000K sales, $15K warranty costs
- Year 2: $750K sales, $15K warranty costs
- Year 3: $900K sales, $12K warranty costs
- Year 4: 0 sales, $4K warranty costs
- Year 5: 0 sales, $2K warranty costs
To calculate the balance in the Warranty Provisions account at the end of Year 5, we need to add up the cumulative warranty costs for Year 1, 2, and 3 which are $15K, $15K, and $12K respectively. This gives us a total of $42K. Next, we subtract the warranty costs for Year 5 ($2K) from this cumulative amount. The result is the balance in the Warranty Provisions account at the end of Year 5, which is $40K.
Understanding Warranty Provisions is crucial for businesses to accurately estimate future costs and ensure they have sufficient provisions set aside. By staying on top of these provisions, companies can avoid financial surprises and maintain a healthy balance sheet.
Now that you know how the balance in the Warranty Provisions account at the end of Year 5 is calculated, you can apply this knowledge to analyze similar financial scenarios in the future. Keep exploring and learning about financial concepts to enhance your understanding and decision-making skills!