205 Contracts in Transit

Assets

Cash and Contracts

Synopsis

Account 205 is established to record finance Contracts covering new and used vehicle sales which have been submitted to financial institutions for payment.

Example 1

Record a new vehicle sale for the amount of $17,571 with a finance contract reserve of $300, sales tax of $879 and Registration Fees of $125.  The inventory value is $16,721.

Journal: New Vehicle Sales

Example 2

Record an ACH (Automated Clearing House) deposit of $18,875 from the finance institution for payment of the customer contract above.

Journal: Cash Receipts

Comments

A debit balance represents the amounts financed on customer notes discounted, which are due from finance institutions.

Note:

At month end, a schedule of the notes for which payments have not been received should be prepared.

Transactions, which are related, should be recorded in separate sub-accounts.  Sub-accounts serve to keep records organized for future analysis and auditing.  The sub-accounts in these examples are designated by a letter following the account number (suffix).  Please refer to your DSP's instructions for establishing sub-accounts.

CUSTOMER RECEIVABLES

Separate general ledger accounts should be maintained for receivables resulting from vehicle sales, service and parts sales, leases and rentals, and other sales. Other should be for receivables resulting from sales of items carried in Account 238 Other Automotive (inventory) and Account 252 Other (Inventory)

For each general ledger account, a separate subsidiary ledger should be maintained. A detail of the debits and credits should be posted to the individual accounts in the subsidiary ledgers.

A supporting schedule with an age analysis of each subsidiary account should be prepared at the month end. The net amount of each schedule should agree with the balance in the related controlling account.

For purposes of aging, the due date of customer receivables is that agreed on at the time of the sale. This stipulation would apply to extended and usual terms of payment.

Receivables due from governmental agencies and collision claims with insurance companies may be aged.  However, it is not necessary to include these amount in the over 90 days past due column unless collection appears doubtful. It is also not necessary to include these amounts in the month-end computation of the allowance for doubtful accounts.

Customer notes and accounts receivable, classified and aged in accordance with the trial balances, should be shown on the operating report.

Any credit balances listed on the trial balances should be classified as a current liability and shown on page 1 of the operating report as follows:

·         Accounts Receivable Credit Balances

·         Customer Deposits

If preferred, notes and accounts receivable from others may be recorded in these customer accounts but should be shown on page 1 of the operating report as follows:

·         Debit Balances

Account 293, Notes and Accounts Receivable - Officers, for amounts due from active and inactive officers and from stockholders.

Account 294, Notes and Accounts Receivable - Other, for:

A.      Amounts due from employees for notes, accounts, loans, and advances, except current balances due for merchandise.

B.     Loans and advances due from subsidiary and affiliated enterprises and from outsiders.

C.     Amounts due from subsidiary and affiliated enterprises for merchandise when extended terms have been granted.

·         Credit Balances

1.      Amounts Payable to officers and stockholders on open account should be combined with Account 300, Accounts Payable – Trade Creditors.

2.      Notes payable due within one year to officers and stockholders should be combined with Account 314, Notes Payable – Other.