262 Due From Finance Companies

Assets

Receivables

Synopsis

Account 262 is established to record the amount of monies Due From Finance Companies for the sale of retail finance contracts. As a matter of policy some finance institutions withhold a percentage of funds due to the dealership as a reserve to offset the Chargebacks that are likely to occur in the future.

Debits

Credits

The amount of finance income due on customer notes discounted with finance institutions
The main balance held by finance institutions on customer notes discounted

The amount of payments received from financial institutions
The monthly adjustments to this account

Example 1

Record a vehicle sale for the amount of $17,500 with a finance contract reserve of $450, sales tax of $875, Registration Fees of $125. The customer receivable is $1,375. The inventory value of the vehicle is $16,000.

Journal: New Car Sales

Entry:		Debit	Credit
Account 205	Contracts in Transit	$17,125
Account 220A	Accounts Receivable – Customers – Vehicles	$1,375
Account 262	Due from Finance Companies	$450
Account 600-618	Cost of Sales – New Cars – Retail	$16,000
Account 400-418	Sales – New Cars – Retail		$17,500
Account 231	Inventory – New Cars		$16,000
Account 324A	Sales Taxes Payable – Excise Taxes		$875
Account 806	Finance Income – New		$450
Account 905	Other Income (Registration Fees)		$125

Example 2

Record the $450 receipt of the finance income received from the finance company for the above contract.

Journal: Cash Receipts

Entry:		Debit	Credit
Account 201	Cash on Hand	$450
Account 262	Due from Finance Companies		$450

Example 3

Record the receipt of $375 from the finance income received from the finance company for the above contract; however, the amount set up was $75 less than received.

Journal: Cash Receipts

Entry:		Debit	Credit
Account 201	Cash on Hand	$375
Account 806	Finance Income – New	$75
Account 262	Due from Finance Companies		$450

Comments

A debit balance represents unpaid finance income due to the dealership (the finance income is usually indicated on the check to the dealer and in the notice of acceptance).

Note:

The month-end balance should be reconciled with monthly finance institution statements. Any difference should be determined and corrected.

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.