Final answer:
The recognition of warranty costs incurred the following year is addressed through the expense warranty approach, where companies recognize the expected warranty costs in the same period as the sale. This ensures proper matching of costs and revenue. Keywords: warranty costs, expense warranty approach, recognition.
Step-by-step explanation:
Recognition of warranty costs incurred the following year is addressed through the expense warranty approach. Under this approach, companies recognize the expected warranty costs in the same period in which the related revenue is recognized. This ensures that the costs associated with providing warranty services are properly matched with the revenue generated from the sale of the goods.
For example, if a company sells a product with a one-year warranty, they would estimate the expected warranty costs for the following year and record the expense in the same period as the sale. This approach helps companies accurately account for the costs and obligations associated with warranties.
SEO Keywords: warranty costs, expense warranty approach, recognition, revenue, obligations