agreement by the seller of goods or services to satisfy for a stated period of time deficiencies in the item's quality or performance. Warranty terms may be included on the buyer's receipt. The warranty usually provides for repair or replacement of the item in the case of malfunctioning or poor workmanship. Typically, there is no additional charge during the warranty period. The seller records warranty expense and related estimated liability in the year of sale. A warranty percentage is usually based on prior experience. Assume sales for 2000 are $100,000. Estimated warranty cost is 2% of sales. The entry to record warranty expense is:

12/31/2000              Warranty expense             2000
                                      Estimated warranty payable          2000

If on 1/25/2001, actual warranty services performed cost $500, the entry is:
Estimated warranty payable        500
                                         Cash                 500