(1) Base Case - warranty claims handled in-house
Period
Transactions
Beginning of Cash
Year 1
Revenue
(TV sold for Rs. 1000 cash)
Cost of goods sold
Inventory
(Cost of goods sold being recorded - matching)
Cash
Deferred (Unearned) Revenue
(Entire warranty amount received upfront)
End of Year 1 Deferred (Unearned) Revenue
Revenue
(Proportionate warranty income recorded)
End of Year 1 Warranty expense
Provision for Warranty
(Warranty expense recorded - matching)
End of Year 2 Deferred (Unearned) Revenue
Revenue
(Proportionate warranty income recorded)
End of Year 2 Warranty expense
Provision for Warranty
(Warranty expense recorded - matching)
During Year 3 Provision for Warranty
Cash
(Actual claim from the customer)
End of Year 3 Deferred (Unearned) Revenue
Revenue
(Proportionate warranty income recorded)
End of Year 3 Warranty expense
Provision for Warranty
(Warranty expense recorded - matching)
Please Note: The above 2 cases have been presented
accounting can be done for other cases (variations). F
of completion method is adopted as discussed today,
revenue upfront and lower deferred revenue. In prin
the same.
n-house
(2) Advanced Case - warranty outsourc
Debit
1,000
Credit
1,000
Period
Beginning of
Year 1
950
950
210
210
End of Year 1
70
70
End of Year 1
25
25
End of Year 2
70
70
End of Year 2
25
25
End of Year 3
45
45
End of Year 3
70
70
25
25
have been presented in detail here. Similarly the
er cases (variations). For instance, if percentage
d as discussed today, you would record a higher
erred revenue. In principle other things remain
the same.
Advanced Case - warranty outsourced (contract with a vendor)
Transactions
Cash
Revenue
(TV sold for Rs. 1000 cash)
Cost of goods sold
Inventory
(Cost of goods sold being recorded - matching)
Cash
Deferred (Unearned) Revenue
(Entire warranty amount received upfront)
Deferred (Unearned) Revenue
Revenue
(Proportionate warranty income recorded)
Warranty expense
Cash
(Warranty expense recorded - matching)
Deferred (Unearned) Revenue
Revenue
(Proportionate warranty income recorded)
Warranty expense
Cash
(Warranty expense recorded - matching)
Deferred (Unearned) Revenue
Revenue
(Proportionate warranty income recorded)
Warranty expense
Cash
(Warranty expense recorded - matching)
Debit
1,000
Credit
1,000
950
950
210
210
70
70
25
25
70
70
25
25
70
70
25
25
Date
During
January
During
January
During
January
Transactions
Cash
Revenue
(Hats sold for cash; 4000@9/Hat 10% trade discount)
Accounts Receivable
Revenue
(Hats sold on Credit; 4000@10/Hat)
Cash
Credit Card Service Fee
Revenue
(Credit Card Sales; 2000@10/Hat, 2% Fee)
Jan 31st
Cash
Cash Discount
Accounts Receivable
(Cash received from customers, 5% cash discount)
Jan 31st
Sales Return
Accounts Receivable
(Hats returned by customers, 300 hats @ Rs.10/hat)
Debit
36,000
Credit
36,000
Sales break-up (week-wise)
40,000
40,000
19,600
400
Total Hats
Sold in last week at a trade discount of 10%
Sold in first 3 weeks
20,000
Sales break-up (mode of payment wise)
19,000
1,000
20,000
3,000
3,000
Total Hats
Credit
Credit Card
Cash
Units
10000
4000
6000
Amount
100000
36000
60000
Units
10000
4000
2000
4000
Amount
100000
40000
20000
36000
(1) Allowance for Bad Debts as 5% of Credit Sales
Debits
2011
2012
2013
Accounts Receivables
Amount
Credits
Op. Balance
20,000
Allowance for Bad Debts (Bad Debts
written off)
Sales (Credit)
40,000
Cash (collection from customers)
Op. Balance
29,000
Allowance for Bad Debts (Bad Debts
written off)
Sales (Credit)
70,000
Cash (collection from customers)
Op. Balance
16,000
(2) Allowance for Bad Debts as 10% of Accounts Receivables
Debits
2011
2012
2013
Accounts Receivables
Amount
Credits
Op. Balance
20,000
Allowance for Bad Debts (Bad Debts
written off)
Sales (Credit)
40,000
Cash (collection from customers)
Op. Balance
29,000
Allowance for Bad Debts (Bad Debts
written off)
Sales (Credit)
70,000
Cash (collection from customers)
Op. Balance
16,000
Please note: Current year's opening balance is previous year's closing
Amount
3,000
Debits
Allowance for Bad Debts
Amount
2011
Accounts Receivables
(Bad Debts written off)
3,000
2012
Accounts Receivables
(Bad Debts written off)
5,000
28,000
5,000
78,000
2013
ts Receivables
Amount
3,000
Debits
Allowance for Bad Debts
Amount
2011
Accounts Receivables
(Bad Debts written off)
3,000
2012
Accounts Receivables
(Bad Debts written off)
5,000
28,000
5,000
78,000
2013
e is previous year's closing balance
Allowance for Bad Debts
Credits
Amount
Op. Balance
1,000
Bad Debt Expense
(5% of Credit Sales)
2,000
Op. Balance
Bad Debt Expense
(5% of Credit Sales)
3,500
Op. Balance
(1,500)
Allowance for Bad Debts
Credits
Amount
Op. Balance
1,000
Bad Debt Expense (balancing figure)
4,900
Op. Balance
(10% of the AR balance)
2,900
Bad Debt Expense (balancing figure)
3,700
Op. Balance
(10% of the AR balance)
1,600
Debits
2014
2015
Op. Balance
Raw Materials
Amount
Credits
WIP
245
(Transferred to WIP)
Purchases
850
Op. Balance
400
Amount
695
2014
Debits
WIP
Amount
Op. Balance
18
Raw Materials
(Transferred from Raw Materials)
695
Salary: Factory
Fuel
Electricity - Factory
Depreciation - Plant & Mach.
600
100
75
125
Op. Balance
28
2015
Less:
Sales
COGS
Gross Profit
2700
1,425
1,275
Salary: Marketing & Admin
Electricity - Admin Office
Depreciation - Admin Office
300
35
30
Less:
Total Operating Expenses
Operating Income
365
910
Less:
Interest
Profit Before Tax
50
860
Credits
WIP
(Transferred to WIP)
Amount
1,585
Debits
2014
2015
Finished Goods
Amount
Op. Balance
340
Raw Materials
(Transferred from Raw
Materials)
1,585
Op. Balance
500
Finished Goods
Credits
Amount
Cost of Good Sold
1,425
