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Unit Warranty Expense Accrual

You can record a unit warranty expense accrual with the COGS transfer.

If it is your company's practice to provide a warranty with its products, you may want to automatically record this liability when the bills or units are posted. As with the COGS transfer, the warranty accrual prints separately on the same posting journal. Note that items billed using the automatic billing quantity feature are included in the warranty cost accrual if they have been included in the setup. As with the unit COGS function, you can use warranty expense accruals with standard, project product, or customer product bills.

You can set up unit warranty accruals the same way, whether the unit pricing is done through the generic pricing catalogs or through the CLINs; with either method, you can use the Warranty Costs subtask on the Project Unit Pricing subtask of the CLINs screen on the Manage Project User Flow. In this subtask, you can identify two different warranty codes with each item:  Manufacturer or External and Reseller or Internal. You must set up warranty codes on the Manage Warranty Information screen before you can select them in this screen. The two warranty codes do not have to be the same for a given item.

The same two methods, Percentage of Sales and Cost Schedule, that were available for the COGS transfer, are also available for the warranty expense accrual on the Warranty Costs subtask on the Project Unit Pricing subtask of the CLINs screen on the Manage Project User Flow. To use the Percentage of Sales method, select the Percentage of Sales option and enter a percent in the Enter Percentage of Sales to Calculate Warranty Costs field. To use the Cost Schedule method, select the Cost Schedule option and enter the appropriate rows in the table window. You must complete at least one row in the table window, with no gaps in or overlaps of the dates. If you are using the Cost Schedule method, the date ranges do not have to match the Unit Price Schedule and the COGS Cost Schedule. However, to ensure that each date range in the Unit Price and COGS Cost Schedules has a corresponding date range in the Warranty Cost Schedule, you may want to enter the same date ranges in all three tables. The warranty expense accrual method does not have to be the same as the COGS method. In other words, you can recognize COGS by a cost schedule and accrue warranty costs by a percentage of sales or vice-versa.

You must set up accounts to record the warranty expense and warranty accrual. The warranty expense account should be a non-labor type that points to an income statement line. The account does not need to be project-required, unless you want a project posted to the general ledger for informational purposes or you want it to appear on your project reports as a project cost. The warranty accrual account should be a liability type that points to a balance sheet line. This account does not need to be project-required, unless you want a project posted to the general ledger for informational purposes. Because neither the warranty expense nor the warranty accrual accounts must be project-required, you do not have to include them in the project account groups or link them to the projects, unless you plan on using them with projects.

See the "Default Accounts" topic for a full discussion on how the unit warranty accounts are designated.