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How are you?
I hope you are doing well,
In the example mentioned above its given the following,
Warranty provision. 90 in credit side.
And in the additional information it’s mentioned that, the year-end provision for warranty claims has been estimated at $75. And warranty costs are charged to administrative expense.
I note that it decreases administrative expenses by $15 but I don’t know why can you explain it in simple way using the T-account please.
And show me the journal entry if possible
I’m very well, thanks.
I’d not worry about the T-accounts as that might make it more complicated in this instance. In this situation we have a provision of 90 that needs to be reduced to 75, a reduction of 15. To reduce the provision we debit the provision and the credit is taken through profit or loss in administrative expenses.