We're evaluating more effective ways to account for warranty-related costs and would appreciate insight into best practices others may be using.
Currently, we maintain a separate warranty job/cost code, and any warranty work performed after the original project has been closed is charged directly to that job. The challenge with this approach is that 100% of the warranty expense is recognized immediately as a company overhead cost, rather than being matched against the revenue of the original projects.
We're exploring whether there are better methods for accruing or reserving for anticipated warranty costs throughout the life of a project-potentially through estimated warranty reserves, percentage-based accruals, or other accounting treatments.
For those in construction or project-based industries, how are you handling warranty accruals and post-close warranty expenses? Any recommendations, lessons learned, or accounting best practices would be greatly appreciated.
------------------------------
Paige Fagan
Accounting Controller
All Tech Electric, LLC
Lewisville TX
(940) 910-7441
------------------------------