You have started working for a company that manufactures lawn mowers

These mowers carry a warranty that will replace defective parts for one year. The corporate president feels that an expense should be recorded when the defective parts are replaced. Explain the proper accounting treatment to the corporate president.
What will be an ideal response

The matching principle requires businesses to record warranty expense in the same period the company records the revenue from the sales of the lawn mowers. This means that the expense is incurred when the sale is made, not when the company makes the warranty repairs. Because the exact amount of the warranty expense is not known at the time of the sale, the company must estimate the amount of expense. At the end of the accounting period, an adjusting entry is made to debit Warranty Expense and credit Estimated Warranty Payable. Estimated Warranty Payable is a liability account that appears on the balance sheet. When defective parts are replaced, the company will debit Estimated Warranty Payable and credit Merchandise Inventory.