What is recorded when customers pay for a product under warranty?

When customers pay for a product under warranty, the correct accounting entry involves debiting Warranty Payable and crediting Cash. This reflects the fact that the company has previously recognized a liability related to the warranties they issued when the products were sold.

The debit to Warranty Payable indicates a reduction in the liability, which is appropriate because the company is now fulfilling its obligation to provide cash (as customers are paying for warranty services) rather than managing a future liability. The credit to Cash reflects the outflow of cash, which occurs when customers make their payment.

This transaction is not related to warranty expenses being recognized since customers paying for warranty work does not directly affect expense accounts at the time of payment. Instead, it focuses on reducing the previously recorded liability, making it a transaction that simply adjusts cash and the obligations the company has as a result of warranties planned.