USA Costing Acctg - RMA and Bstock

May 6, 2019
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United States
Question, should a returned unit for warranty come in at 0.00 value or full standard? What is the appropriate GL mapping? should the warranty work order for repair add value to B-stock?




John Baker

By a return unit for WANNITY, being accounted for, depends on the reason for the claim under what circumstances, condition of return, who authorized the RA, and the nature of the work order.

I know these immediate remarks have nothing to do with your question directly, but like everything else - the underlying currents of who's responsible for what and why, has a lot to do with applying the correct impacts to the financials. This is especially the case where commissions, bonuses, management reviews, promotions, and even hires and fires.

Warranties are usually a marketing and sales thing. Marketing and sales usually grant warranty authorizations and that is usually coded for the reasons of the warranty, return or trash it, replacement or not, and so forth. Check with you management to see who authorizes what.
When returned, usually somebody associated with customer service, in marketing and sales, will either refurbish, take the item for parts, trash it, or even use it as a demo for training purposes.
No regular inventory accounting is necessary. Usually, a place in the company where such work is done to repair and refurbish, holds on to the item, and is sold as a second.*** A separate product account called REFURBGISHED SECONDS is maintained in that location that comes under the jurisdiction of marketing and sales.*** The value stated on the books for such an item is the cost for the actual cost of the refurbishment - not the lower cost or market, not at standard, or any other application. Why? Because, a line of managers has decided to give up future profit benefits, and those decisions have huge ramifications into so many other offices within the company. Also, warranties are a dynamic thing to get stuck in. Every return has a story, a different "thing" to it, and has unknowns that a company does not want mixed with their in stock parts and/or finished goods.
So, when the item comes in - no debit or credits to any regular inventory account is recorded. The Sales Journal records the debit of the sales price (if that's what authorized) Sales Returns And Allowances under warranties as an expense for the amount granted to the customer and a credit to the customer's Accounts Receivable. This amount(s) may or may not include freight and handling. Some companies prefer to record such added costs to a freight in/out account and let that be that.
The fun comes for the accounting staff is when - but written authorization notices, who gets their commissions taken away, who gets charged in their budget account for warranty maters and how much. That's something that I suggest you may want to pay particular attention to, down the road. As you progress in this profession, being part of that decision process - from a financial control point of view, can be dicey.

***The primary reason for a account held separately for refurbished goods is for product liability management. Refurbished, warrant returns and the like usually carry a disclosure that the product is refurbished and thus, under a limited warrant, or no warranty at all.

Did I address your question to your satisfaction? Is there a question or part of a question to your situation that I did not cover?
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