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 |
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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
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Departmental Distribution |
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015 Policy Work-Vehicles |
New Veh. |
Used Veh. |
Lease & Rental |
Mechanical |
Body Shop |
Parts & Access. |
Gen & Admin. |
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01 |
02 |
03 |
05 |
06 |
07 |
09 |
Repairs and adjustments to a used vehicle previously sold |
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Total expense |
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Adjustments to Acct. 263, Warranty Claims |
Total adjustment |
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Repairs and adjustments to a lease unit not covered by warranty and not subject to a maintenance agreement |
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Total expense |
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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.