Warranty Costs and Bad Debt Expense

In: Business and Management

Submitted By wklai85
Words 1707
Pages 7
PBL 1: TechnoMaju Sdn Bhd
To promote sales, the Marketing Manager offers a one-year warranty and credit sales. These warranty costs and bad debt expense are estimated at 1% of total sales and 1% of credit sales respectively. According to Mydin, since these are estimations the accountant should just ignore them. Otherwise, the amount of profit will not be accurate.
Part 1 : Learning Issues 1. What are credit sales? 2. What are warranty costs? 3. What are bad debts expenses? 4. What are the methods of accounting for bad debts expenses? 5. What are the methods to estimate bad debt expenses? 6. What are the significance of the estimation of bad debt expense and warranty cost to the financial statements? Introduction
A sales promotion is an activity designed to boost the sales of a product or service. It may include an advertising campaign, increased PR activity, a free-sample campaign, offering free gifts or trading stamps, arranging demonstrations or exhibitions, setting up competitions with attractive prizes, temporary price reductions, door-to-door calling, and telemarketing. Price promotions are also commonly known as “price discounting”. These offer either (1) a discount to the normal selling price of a product, or (2) more of the product at the normal price. Increased sales gained from price promotions are at the expense of a loss in profit – so these promotions must be used with care. For TechnoMaju Sdn Bhd, the company is offering a one-year warranty and credit sales to promote sales. A credit sale is a sales transaction by which the buyer is allowed to take immediate possession of the purchased goods and pay for them at a later date.
The revenues generated from credit sales to be collected are recorded in Accounts Receivable in the balance sheet. However, not all of the accounts receivable can be fully recovered as some of the…...

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