240 Used Cars

Assets

Inventories

Synopsis

Account 240 is established to record the inventory value of Used Cars on hand.

Debits

Credits

  1. The lower of trade-in allowance or appraised wholesale value of used cars accepted in trade on sales of new and used units

  2. The Cost of used cars purchased, including those of factory representatives

  3. The Internal selling price of the labor and materials used in reconditioning

  4. The traveling expenditures when acquiring used cars

  5. The auction fees on used cars purchased

  6. The Appraised wholesale value of company-owned cars, other than those in demonstration and other temporary company service, transferred for sales as used cars

  7. The Appraised wholesale value of repossessed cars

 

  1. The Inventory value if used cars sold and otherwise disposed of

  2. The monthly write down to appraised wholesale values

 

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.