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Car Sales Accounting

Accounting for the different types of car deals generated from your F&I programs is important if you want to completely understand your business operations and the resulting effective gross profits.
There are retail finance, retail cash, wholesale and BHPH deals to consider when setting up your F&I program so your accounting transactions are recorded accurately to furnish you the best possible information to analyze your business.

Retail finance can also be broken down into different types, retail prime and sub prime car deals which should be recorded differently in your general Retail ledger.

Retail Prime Transaction
A customer has agreed to purchase a unit you have stocked for $7,500, original cost of $7,000 plus $500 in reconditioning repairs. There is no trade-in. Selling price of the vehicle is $9,500 and the customer agrees to purchase CL&AH, GAP and an extended service contract. The customer is financing the vehicle and you have reserve opportunity. The ledger entry would look similar to the following:

 

Debit

Credit
Cash (down payment)       1,000  
Vehicle receivable 500
Contracts in transit  10,000  
Sales - used cars - retail          9,500
Cost of sales - used cars - retail 7,000     
Cost of sales - reconditioning - used cars - retail 500
Inventory - used cars     7,500
Finance income 600
Finance reserve receivable 600
CL & AH insurance income 300
Cl & HA insurance payable                 300
GAP income         200
GAP contract payable 200
Sales - extended service contract        1,000
Cost of sales - extended service contract      500  
Extended service contract payable    500
Sales commission expense - retail  250  
sales commission payable    250

If the transaction were a retail sub prime car deal, the following additional lines would be added to the ledger entry:

Debit

Credit

Cost of sales - sub prime bank fee     600  
Contracts in transit - bank fee      600

If you wanted to specifically isolate your retail deals from your sub prime deals, you would also use sale, cost of sales, reconditioning and commission accounts with “sub prime” replacing the word “retail” in the account name.

Retail Cash Deal
A retail cash deal would look a bit differently in the ledger. A customer pays $10,500 for the same vehicle and purchases an extended service contract. In this case the ledger transaction would look similar to the following:

Debit

Credit
Cash      10,500  
Sales - used cars - cash        9,500
Cost of sales - used cars - cash 7,000     
Cost of sales - reconditioning - used cars - cash 500
Inventory - used cars     7,500
Sales - extended service contract 1,000
Cost of sales - extended service contract 500
Extended service contract payable 500
Sales commission expense - cash 250
Sales commission payable 250

Wholesale Deal
The following illustrates the ledger transaction for a wholesale transaction.

Debit

Credit
Cash or vehicle retail      4,000  
Sales - used cars - wholesale        4,000
Cost of sales - used cars - wholesale 3,000     
Cost of sales - reconditioning - used cars - wholesale 500
Inventory - used cars     3,500
Sales - extended service contract 1,000

BHPH Deal
A customer agrees to a BHPH transaction involving the same vehicle with $1,000 down and an extended service contract and finances the balance with the dealership. The ledger transaction would look similar to the following:

 

Debit

Credit
Cash      1,000  
Notes receivable - BHPH 9,900
Sales - used cars - BHPH        9,500
Cost of sales - used cars - BHPH 7,000     
Cost of sales - reconditioning - used cars - BHPH 500
Inventory - used cars     7,500
Sales - service contract - BHPH 1,000
Cost of sales extended - extended service contract - BHPH      500
Extended service contract payable  500
GAP income - BHPH 200
GAP contract payable 200
Sales commission expense - BHPH 250  
sales commission payable    250

These entries are only examples of potential transactions that may result from the different types of car sales in your dealership. They are not meant to be all inclusive as some states may require the collection and remittance of sales tax, license and title fees, etc. Some dealerships charge a DOC fee, which is also added to the total cash and receivables due.

A dealership that utilizes consistent and accurate accounting entries for sale transactions has taken the first step to understanding their business. It helps to separate sales, cost of sales and various expenses by the type of sale, as shown above. It may also help to separate the various types of sales into different departments with associated expenses allocated to each. This will allow you to analyze your strengths and weaknesses in the various sale types just by printing a departmental profit statement.

I hope these examples have helped you better understand the accounting side of your sales. Compare these sample entries to your actual accounting software entries and investigate the differences. It helps to record all entries in one transaction instead of pieces.

If you have any further questions regarding how your sales should be recorded, contact your accountant or CPA, and they should be able to assist you.


Vol 5, Issue 8
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