What is an expense?

Understanding Expenses

Expenses can be defined as the amount that is incurred in making a product or a commodity. These are the basic inputs that the company has to acquire to maintain a particular product.

Based on the data provided, Trighton's Trailer Co. sells all kinds of trailers and provides a one-year warranty on all new trailer sales. The company anticipates that 2% of trailers will be returned, incurring a warranty cost of $100 per trailer.

During the month, Victor sold 300 trailers for a total of $255,000. At the end of the month, Trighton will record $600 in warranty expenses. This calculation is derived from multiplying the number of trailers sold (300) by the anticipated return rate (0.02) and the warranty cost per trailer ($100).

In conclusion, an expense, in this case, refers to the cost incurred by Trighton's Trailer Co. due to warranty claims on the trailers sold by Victor. By recording $600 in warranty expenses at the end of the month, the company acknowledges the financial impact of product returns and warranty services provided to customers.