q9: reported revenue is most likely reduced by mangement discretionary estimate of: warranty cost and return what is warranty cost and return here? Thanks.
Warranty Cost and Returns is basically a contra-account that sits on the balance sheet. Say you are in the business of selling bicycles. You sell bikes at $500 each with a 1 year warranty. You know based on your previous experience that a certain portion out of the bikes will breakdown and require repairs. You estimate this figure on average is about $10 per bike. If you sell 3 bikes at $500 in the quarterly reported period, you do not report $1500. You instead report $1470 in sales, because it is reduced by a contra account booking for warranty reserve of . So it is discretionary, based on management’s experience (or their desire to play with the numbers) how much they will attribute to this reserve. Typically if you look at the Accounts Receivables figures (especially in the 10-K) of companies that make products like cars, appliances, etc. this warranty reserve is held as a contra-account against A/R (ie. there is a net accounts receivable of $1470 reported on the balance sheet which includes the contra account for warranties and the detailed explanation shows a gross receivables account which is the total sales figure of $1500 and the warranty contra).
thanks. prophets Wrote: ------------------------------------------------------- > Warranty Cost and Returns is basically a > contra-account that sits on the balance sheet. > > Say you are in the business of selling bicycles. > You sell bikes at $500 each with a 1 year > warranty. You know based on your previous > experience that a certain portion out of the bikes > will breakdown and require repairs. You estimate > this figure on average is about $10 per bike. > > If you sell 3 bikes at $500 in the quarterly > reported period, you do not report $1500. You > instead report $1470 in sales, because it is > reduced by a contra account booking for warranty > reserve of . > > So it is discretionary, based on management’s > experience (or their desire to play with the > numbers) how much they will attribute to this > reserve. > > Typically if you look at the Accounts Receivables > figures (especially in the 10-K) of companies that > make products like cars, appliances, etc. this > warranty reserve is held as a contra-account > against A/R (ie. there is a net accounts > receivable of $1470 reported on the balance sheet > which includes the contra account for warranties > and the detailed explanation shows a gross > receivables account which is the total sales > figure of $1500 and the warranty contra).