[Wendysaurman]

I work for a car repair company in CA. How would I record Warranty work? It can involve parts and labor. Sometimes the cars are under our warranty and other times it is paid for by a outside warranty company. We currently don't have a warranty liability account.

[paraclete]

When you say warranty work do you mean work done under warranties given on the work done by your company or work done on behalf of a third party. These two items must be clearly distinguished.

Work done as a result of your own warranty is an operating cost, an expense. As warranty is likely to extend beyond one accounting period you should establish a warranty liability provision at balance date and the amount provided would be an operating cost. Once the provision is established you would debit costs incurred to that account and credit an adequate part of revenue to cover warranty costs debiting warranty expense. Work done on behalf of a third party is a cost of a revenue item since it is to be expected that you will receive reimbursement thus the third party becomes a debtor for work invoiced to them

[Wendysaurman]

I am confused by : Work done on behalf of a third party is a cost of a revenue item. Wouldn't it be Labor Revenue and Accts. Rec. Third Party?