Ans:
If a service or product fails to meet the terms of a warranty, the seller or manufacturer may be held liable and responsible for warranty costs. This is referred to as a product warranty or assurance-type warranty.
In accounting terminology, an assurance-type warranty is a contingent liability that is both probable and estimable. As a result, a company must record the estimated replacement costs or repair costs during the warranty period at the time of sale.
On the balance sheet, this cost is shown as a liability, and on the income statement, it is shown as an expense.