I believe you have to put aside some portion of the cost of the item as a liability. So say you sold a $100 item that cost $70 and the average cost of providing

I believe you have to put aside some portion of the cost of the item as a liability. So say you sold a $100 item that cost $70 and the average cost of providing warranty service per item is calculated to be $10. Then you would have to set aside $10 of the $100 as a liability.