What is the liability account set up when warranty expense is recognized?

When warranty expense is recognized, it creates a liability that reflects the company's obligation to cover potential future warranty claims on products sold. This liability account is typically referred to as warranty payable.

As warranty claims are a normal part of business operations for companies that sell products with warranties, recognizing the expense is essential for accurately reflecting the company's financial condition. By recording warranty payable, the company acknowledges that it has a future outflow of resources (cash or services) that will be required to fulfill its warranty obligations.

In this context, accrued liabilities might include various other obligations the company owes, but warranty payable specifically pertains to the obligation associated with warranty claims. Deferred revenue and unearned revenue refer to payments received before the delivery of goods or services and do not accurately describe a company's obligation related to warranty expenses. Therefore, warranty payable is the appropriate liability account established when recognizing warranty expenses.