Explain the nature, measurement, and reporting of provisions such as warranty liabilities.

- Provisions are future liabilities that are uncertain in timing or amount such as warranty liabilities.

- Since warranties help generate sales, the estimated future cost of servicing the warranty must be recorded in the sales period (this is an example of the matching concept).

- This is done by expensing the estimate of the future cost of servicing the warranty and creating a liability.

- As warranty claims are paid to customers or related expenditures are made, the estimated liability is reduced.