231 New Cars

Assets

Inventories

Synopsis

Account 231 is established to record the inventory value of New Cars on hand.

Debits

Credits

  1. The factory invoice amount, less holdback and other non-related items such as supplemental advertising funds, of New Cars acquired

  2. The Internal selling price of dealer-installed accessories and optional equipment and the labor and materials required for installation

  3. The Destination, delivery and handling charges

  4. The Cost of new units transferred from demonstration and other temporary company service for sales as new cars

  1. The replacement value of accessories, optional equipment and tires removed from new cars and placed in Account 242, Parts & Accessories (inventory) and Account 243, Tires (inventory) as applicable

  2. The amount of subsequent factory price reductions

  3. The Cost of New Cars placed in demonstration and other temporary company service

  4. The Cost of New Cars transferred to other dealers

  5. The Cost of New Cars sold and otherwise disposed of

 

Example 1

Record the factory invoice of $17,043 for the purchase of a new car from the manufacturer. The new car inventory value is $16,168, the Holdback is $525, Co-op Advertising is $175 and New Vehicle Advertising expense is $175.

Journal: New Vehicle Purchase

Entry:

 

Debit

Credit

Account 231

Inventory – New Cars

$16,168

 

Account 261

Factory Receivables – Holdback

$525

 

Account 261

Factory Receivables – Co-op Advertising

$175

 

Account 065-01

Advertising Expense – New Vehicles Department

$175

 

Account 310

Notes Payable – New Vehicle & Demos

 

$17,043

Example 2

Record the $17,043 purchase of a new car from another dealer.  The new car inventory value of $16,168, $525 Holdback, $175 LAM dealer contribution and the $175 LAM group contribution are to be recorded as debits to account 905.

Journal: Cash Disbursement (or New Vehicle Purchase Journal)

Entry:

 

Debit

Credit

Account 231

Inventory – New Cars

$16,168

 

Account 905

Other Income (Holdback)

$525

 

Account 905

Other Income (LAM Dealer Contribution)

$175

 

Account 905

Other Income (LAM Group Contribution)

$175

 

Account 202

Cash in Bank

 

$17,043

Example 3

Record a Dealer Exchange (DX) of $17,043 new car sale to another dealer. The $525 Holdback, $175 LAM dealer contribution and the $175 LAM group contribution are to be recorded as credits to account 905.

Journal: Dealer Exchange

Entry:

 

Debit

Credit

Account 220A

Accounts Receivables – Customers- Vehicles

$17,043

 

Account 231

Inventory – New Cars

 

$16,168

Account 905

Other Income (Holdback)

 

$525

Account 905

Other Income (LAM Dealer Contribution)

 

$175

Account 905

Other Income (LAM Group Contribution)

 

$175

Example 4

Record the $335 sale and installation of CD changer in a new vehicle. The CD changer sale is $250 and the internal labor sale is $85. The internal labor cost is $25 and the CD changer cost is $175. 

Journal: Internal Sales

Entry:

 

Debit

Credit

Account 231

Inventory – New Cars

$335

 

Account 663

Cost of Sales – Internal Labor Mechanical

$25

 

Account 684

Cost of Sales – Accessories

$175

 

Account 242

Inventory – Parts & Accessories

 

$175

Account 247A

Inventory – Work in Process – Mechanical

 

$25

Account 463

Sales – Internal Labor Mechanical

 

$85

Account 484

Sales – Accessories

 

$250

Comments

A debit balance represents the cost of New Cars in inventory.

Note:

A record of each unit in the vehicle inventories shown below should be made on a Vehicle Inventory Record at the time the unit is acquired.

Stock numbers should be assigned in numerical sequence to new, used and repossessed units acquired.  A used unit accepted in trade on the sale of a new unit should be given the same stock number as the new unit sold, but followed by the letter A.  A used unit accepted in trade on the sale of another used unit should be given the same stock number as the used unit sold, but followed by the letter B, etc.

Supporting month-end schedules should be prepared.  These schedules should be in agreement with the general ledger accounts and compared to physical inventories of the following:

·        Demonstrators

·        New Cars

·        New Trucks

·        Other Automotive

Supporting month-end schedules should be prepared.  These schedules should be in agreement with the general ledger accounts and compared to physical inventories of the following:

·        Used Cars

·        Used Trucks

LAST-IN, FIRST-OUT (LIFO) INVENTORY VALUATION

Dealers who have elected to utilize the LIFO method of reporting inventory values should establish separate general ledger accounts captioned LIFO Reserve for each inventory account affected by LIFO.

For example, the entries to establish the initial LIFO adjustment for new vehicles should be handled as follows:

 

New Cars

 

New Trucks

Actual inventory

$425,000

 

$175,000

LIFO inventory

$370,000

 

$140,000

LIFO adjustment

$55,000

 

$35,000

 

 

 

 

 

DEBIT

 

CREDIT

ENTRY: Acct. 952 LIFO Adjustment

$90,000

 

 

Acct. 231L, Inventory-New Cars-LIFO Reserve

 

 

$55,000

Acct. 237L, Inventory-New Trucks-LIFO Reserve

 

 

$35,000

 

Subsequent adjustments to each LIFO reserve account should be offset to Account 952, LIFO Adjustment. LIFO adjustments must be recorded and displayed on Page 7, on the operating report.

 

The Total LIFO Reserve, Line 36, Page 7, will be transferred & displayed on Page 1, Line 35.