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How is warranty expense handled for book and tax purposes? Lets say you sell a car with a three year warranty in 1995. I would guess a liability is set up in 1995 to cover estimated cost and thereby match income with expenses. If in year three the expense is greater than the estimate what year does the additional expense get written off, 1995 or 1998? What happens in year four if the company decides to cover an expense. Does that expense get deducted in 1995 or 1999. What are the rules for book and tax and where can I find them? Thank for any help.
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