015 Policy Work – Vehicles

Expenses

Variable Selling

Synopsis

When a customer returns to the dealership for “free” service not covered by the vehicle warranty, then the value of the “free” service absorbed by the dealership is debited to Account 015, Policy Work - Vehicles.  Also, if the amount of warranty paid is different from the amount of the claim submitted, the difference is recorded as a debit if the amount represents an underpayment; or a credit if the warranty payment is greater than the claim.

Debits

Credits

  1. Internal selling price of the labor and materials used in preparing and adjusting vehicles previously sold and leased (except under a lease maintenance agreement) for which neither the customer nor the manufacturer will be charged

  2. Adjustment for the difference between the month-end schedule of unpaid warranty and transportation claims and the balance in Account 263, Warranty Claims when the amount of claim payment is less than the warranty register amount

 

  1. Adjustment for the difference between the month-end schedule of unpaid warranty and transportation claims and the balance in Account 263, Warranty Claims when the amount of the claims payment is greater than the warranty register amount

Example 1

Record the cost of $79 for a new battery installed in a used car customer’s vehicle after they had taken delivery.  The internal part sale is $55 and the cost of the part is $55.

Journal: Internal Sales

Entry:

 

Debit

Credit

Account 015-02

Policy Expense – Used Vehicles Department

$79

 

Account 681

Cost of Sales – Parts – Internal

$55

 

Account 481

Sales – Parts – Internal

 

$79

Account 242

Inventory – Parts & Accessories

 

$55

Distribution of Expenses

 

Departmental Distribution

015 Policy Work-Vehicles

New Veh.

Used Veh.

Lease & Rental

Mechanical

Body Shop

Parts & Access.

Gen & Admin.

 

01

02

03

05

06

07

09

Repairs and adjustments to a used vehicle previously sold

 

Total expense

 

 

 

 

 

Adjustments to Acct. 263, Warranty Claims

Total adjustment

 

 

 

 

 

 

Repairs and adjustments to a lease unit not covered by warranty and not subject to a maintenance agreement

 

 

Total expense

 

 

 

 

Comments

In order to achieve or maintain a high level of customer satisfaction, it is necessary to provide occasional “Policy Work” adjustments to customers when the situation calls for it.  “Policy Work”, “Policy Adjustment”, or “Goodwill” is defined as service work or parts given to a customer when it is understood that neither the customer nor the manufacturer will be charged.  Examples of typical Policy Work are buffing out minor scratches, fixing minor rattles, and replacing worn parts on a used vehicle after the customer has taken delivery.  It is important that employees are fully trained regarding the coverage of the manufacturer’s warranty and the dealership Policy Work so that all customers are treated consistently.