240 Used Cars
Assets
Inventories
Synopsis
Account 240 is established to record the inventory value of Used Cars on hand.
Debits |
Credits |
|
|
Example 1
Record the purchase of a used vehicle from an auto auction in the amount of $14,795 and the used car is added to the used car floorplan. The purchase price includes an auction fee of $295.
Journal: Used Car Purchase
Entry: |
|
Debit |
Credit |
Account 240 |
Inventory – Used Cars |
$14,795 |
|
Account 311 |
Notes Payable – Used Vehicles |
|
$14,795 |
Example 2
Record an internal repair order for reconditioning cost of $400 to the used vehicle above. The internal labor sale is $300 and the parts sale is $100. The cost of labor is $90 and the cost of parts is $80.
Journal: Internal Sales
Entry: |
|
Debit |
Credit |
Account 240 |
Inventory – Used Cars |
$400 |
|
Account 663 |
Cost of Sales – Internal Labor – Mechanical |
$90 |
|
Account 681 |
Cost of Sales – Parts – Internal |
$80 |
|
Account 242 |
Inventory – Parts & Accessories |
|
$80 |
Account 247A |
Inventory – Work in Process – Mechanical |
|
$90 |
Account 463 |
Sales – Internal Labor – Mechanical |
|
$300 |
Account 481 |
Sales – Parts – Internal |
|
$100 |
Example 3
Record the sale of the used car above in the amount of $16,695, with sales tax of $835 and Registration Fees of $125. The inventory value of the used car is $15,195 with $400 due to reconditioning.
Journal: Used Car Sales
Entry: |
|
Debit |
Credit |
Account 220A |
Accounts Receivable – Customer – Vehicles |
$17,655 |
|
Account 646A |
Cost of Sales – Used Cars Retail – Certified |
$14,795 |
|
Account 647A |
Reconditioning – Cert. Used Cars |
$400 |
|
Account 240 |
Inventory – Used Cars |
|
$15,195 |
Account 446A |
Sales – Used Cars Retail – Certified |
|
$16,695 |
Account 324A |
Sales Taxes Payable – Excise Taxes |
|
$835 |
Account 910 |
Document Handling Fees |
|
$125 |
Example 4
Record the $550 write-down of a used car that has been in inventory for over 180 days.
Journal: General Journal
Entry: |
|
Debit |
Credit |
Account 649 |
Adjustment – Used Car Inventory |
$550 |
|
Account 240 |
Inventory – Used Cars |
|
$550 |
Comments
A debit balance represents the inventory value of used cars intended for resale.
Note:
The inventory value of each used vehicle should be the lower of cost or appraised wholesale value.
The cost of a used vehicle is:
· Trade-in allowance
OR
· Purchase price
PLUS
· Internal selling price of mechanical and body reconditioning, including accessories, optional equipment and body and truck equipment plus the internal selling price of the labor and materials required for installation.
· Traveling expenditures when acquiring vehicles.
· Auction fees on vehicles purchased.
At each month end, used vehicles should be adjusted to appraised wholesale values through Account 649, Adjustment – Used Car Inventory , and Account 653, Adjustment – Used Truck Inventory, as applicable.
A record of the cost of reconditioning a used vehicle and the amount of the monthly writedown, if necessary, should be made on the applicable Vehicle Inventory Record.
Used vehicles purchased at GM auctions and from GM divisions should be identified. This can be accomplished by the use of a prefix to the stock number such as PGM 236. The P meaning a purchased unit and GM meaning GM auction or divisions.
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
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.
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.