Blue Raider Inc Has Always Adjusted Entries At The End Of Th

Blue Raider Inc Has Always Adjusted Entries At The End Of The Period

Blue Raider, Inc. has always adjusted entries at the end of the period to record its estimated warranty liabilities. The company has hired a new manager, Sierra Jones, who objects to recording an expense and liability for warranty service on products that have not yet been brought in for warranty repairs. Jones thinks they should only report an expense if and when they do any warranty work. Explain in a paragraph or two why her recommendation would not be appropriate. Be sure to read your classmates' responses and make insightful responses to at least two of their posts. You must start a thread before you can read and reply to other threads.

Paper For Above instruction

The recommendation made by Sierra Jones to refrain from recording warranty-related expenses and liabilities until actual warranty repairs occur is not appropriate from an accounting perspective. According to generally accepted accounting principles (GAAP), companies are required to recognize estimated liabilities and expenses in the period when the related revenues are recognized—that is, when the sale occurs. This principle is grounded in the matching concept, which aims to match expenses with the revenues they help generate within the same accounting period. Since warranties are an inherent part of many sales agreements, companies must estimate future warranty costs at the time of sale and record them as liabilities and expenses accordingly, regardless of whether warranty claims have yet been made or repairs performed. This ensures financial statements accurately reflect the company's financial position and obligations and provides stakeholders with a realistic view of potential future liabilities. Delaying the recognition of warranty expenses until repairs are performed would distort this view, underestimate liabilities, and violate the matching principle, thereby leading to inconsistent and potentially misleading financial reporting. Such estimates are based on historical data and reasonable forecasts, and their recognition ensures that the financial statements present a truthful and fair view of the company's obligations and operational results during a given period.

References

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