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How to Handle Warranty Work and Warranty Item Returns

This article discusses how to manage warranty work for your customers and how to track and retunes items to the vendor that are covered under their warranty. At the bottom of the page, there are links to related topics including how to setup a warranty reserve.

Key Steps

The topic outlines a detailed process for handling HVAC service calls and warranty work using Total Office Manager software. Key steps include:

  1. Identifying warranty parts and creating estimates and POs.
  2. Using work orders and invoices, with appropriate discounts for warranty parts.
  3. Returning defective parts to vendors for credit or replacement, using pick tickets.
  4. Meticulous documentation in vendor credits for future reference.
  5. Handling serialized items and parts from acquired companies or new customers.
  6. Creating generic warranty SKUs for items not in the inventory system.
  7. This process ensures efficient inventory management and accurate financial reporting.

Common Warranty Scenario

In the service industry, warranty work is often a fact of life.  A common scenario might be not long after the installation of a new piece of equipment, maybe an Acme brand air conditioner, a part goes bad and needs to be replaced under warranty.  Your technician makes the repair and keeps the part, tagging it with the information required by the manufacturer.  Back at the shop, you might have up to three options: have the vendor issue a credit to you, have the vendor send you a replacement part, or have the vendor issue you a check for reimbursement.

Entering a Vendor Credit for a Returned Item Under Warranty

If the vendor issues a credit to you, simply record the credit in Total Office Manager by going to Vendor > New Credit and using the Vendor Credit form.  This records the credit and makes it available for use in paying future bills received from that vendor.

When Receiving a Replacement Part

If the vendor is to send you a replacement part or issue you a reimbursement check, do the following:

  • Setup the vendor with their own customer account.  In our example, Acme Manufacturing would have both vendor and customer accounts in Total Office Manager.
  • Create a new account in your Chart of Accounts, named something like “COGS – Warranty Parts & Labor”.  Be sure to set this account Type to “Cost of Goods Sold”.
  • To perform the next step, an administrator will have to turn off Total Office Manager’s “Smart Account Selection Filtering”.  This is found by clicking Edit > Preferences, and going to the Accounting Defaults tab.  After un-ticking (un-check) the checkbox for Smart Account Selection Filtering, the administrator will have to agree to an important message then enter the administrator password to proceed.  Click the “Close” button to leave the Preferences form.
  • Now create a new Invoice Item by clicking Customers > New Invoice Item.  Call it something like “WarrantyReturn” with a description like “Item returned to vendor under warranty coverage”.  Be sure to set the Type field to Other Charge.  In the Accounting tab, set the Income Account field to the COGS account you just setup to handle warranty work.  Total Office Manager will warn you that the account you’re choosing is not an income account.  Click the “Yes” button to ignore the warning and proceed.
  • Turn the Smart Account Selection Filtering back on by ticking it’s checkbox in the Accounting Defaults tab of Preferences.
  • Create a new invoice and choose the vendor as the customer.  You will “sell” the new Invoice Item you just created for handling warranty work to the vendor.  Enter the value of the warranty reimbursement in the Amount field.
  • If you receive a replacement part from the vendor, go to Customers > Create Credit Memos/Refunds and issue a credit to the vendor for the same amount as the warranty invoice.  Now use this credit to “pay” the vendor’s invoice by clicking Customers > Receive Payments. In the New Payment form, tick the checkbox next to the warranty invoice to pay, then click the “Set Credit” button to select the credit you just created.
  • If you receive a reimbursement check from the vendor, go to Customers > Receive Payments, and use the check to pay the vendor’s invoice, listed in the lower portion of the New Payment form, just as any other received payment.

Using this method of managing warranty work will keep track of any reimbursement amounts due to you from your vendors as a receivable until the vendors “payoff” that receivable account with either a credit issued from sending you a replacement part, or with an ordinary reimbursement check.  The complete transaction becomes a “wash” having no net effect on your income or related tax liabilities.

Warranty Item Related FAQ


Sometimes when I do work at a client location, I may have to replace a part that is still under warranty. The warranty covers part of the job (usually the material and not the labor). I removed the replacement part from my current inventory, but the Manufacturer needs to repay me for that item. How do I handle this?


You would receive your serialized item into stock as usual. When you go out to the customer’s location you would replace the item with a new Serialized Item and Invoice the Customer for the full price of the item.

You would also create a Credit Memo for the customer returning the original serialized item to them for credit. This credit memo would then be applied to the new invoice, therefore making only the labor portion due on the invoice.

You would then create a Vendor Credit for the Item that the Vendor needs to pay for. You would choose the serialized Item that was returned from the customer and the serial #.

If the Vendor sends a replacement item, you would enter a bill for the item entering the replacement serial number to put into stock. You would then apply the Vendor Credit to the new Bill.

If the Vendor does not send a replacement item, you would then apply the Vendor Credit to any open Bill for the Vendor.


We sell equipment to a customer, and we perform labor that needs to be billed to the customer. Then a problem occurs with the equipment we sold the customer and it’s still under warranty by the vendor. We need to be able to return this equipment for replacement.


You would have already received the equipment into stock because it was already sold to the customer. When you sold the equipment to the customer you included the serialized item on the invoice and charged the customer for labor. If the customer is only charged for labor and a discount is used then their invoice total would reflect labor only. Once the equipment is deemed faulty you need to return it to the vendor as it is under warranty. To do so in the system, you would then create a customer credit. You may do so by going to the original invoice, edit the invoice, go to menu; create; credit memo. You will receive a message asking you to create a credit for the entire amount of the invoice, go ahead and click yes. The credit will appear on your screen and you will see the credit is for both the serialized equipment and the labor. Delete the line entry for labor because we still want to charge this to the customer. If a discount was used on the invoice to discount off the equipment price, you will enter in a retail price of zero for the serialized equipment so we can properly but the equipment back into stock (to later be returned to the vendor) and have a credit with no balance. If the equipment was sold to the customer at full price, you will make sure this price is reflected on the credit. This will create a credit for the customer which will need to be applied to the customer’s invoice.

The credit amount will be the exact amount of the equipment and the invoice will be the equipment plus the labor. You will do a receive payment for that customer to apply the credit to the invoice, leaving a balance on the invoice for just the labor. (Again, this is only if the equipment was not discounted on the customer’s original invoice).

Your next step is to create the vendor credit for the vendor who covers the equipment sold. Because you have created a customer credit putting that serialized item back into stock, you can now select that item on the vendor credit to return to the vendor as faulty equipment. If the vendor sends a replacement piece of equipment, you will receive that equipment into stock and enter a bill for that vendor with the new serial number. Once the bill is entered you can apply the vendor credit to the vendor bill leaving a $0 balance on both.

You will then need to create a new invoice for the customer selling the new piece of equipment back to them. If you did not discount the equipment on the first invoice and applied the customer’s credit to their first invoice, you will need to discount off this equipment as it is a replacement to them they are not responsible for paying. You can either use a discount invoice item on the invoice, or you can do a receive payment and in the invoice line item on the receive payment, select the discount account, date and amount.

Content Related Warranty Management

Creating and Using a Warranty Reserve – All-In-One Field Service Management Software by Aptora

Entering Credits – Vendor Credit List | Aptora