The new calendar year is upon us. Have you completed your analysis and comparison of 2011 with the prior years as I talked about in my last article? If you don’t complete it now, the year will be half over before you think about it again and you will have wasted six months of potentially better profits. Let’s explore some ways you can better track your accounting transactions in your balance sheet accounts to aid you in the 2012 year-end comparison and analysis process.

First, you should look at your chart of accounts and your trial balance or general ledger. If you look at your asset accounts, do you need to add any new accounts to better separate your receivables, inventories, prepaids and other assets?

You may want to better separate your factory receivables if you have multiple franchises and not post all franchises for a certain type of receivable into the same account, but have multiple accounts for each different franchise you have. This should make it easier to reconcile to the franchise’s specific statement.

Many times I see finance reserve receivables lumped together. Each bank statement you receive on the finance reserves is actually a bank account in the dealership’s name but controlled by the bank. You should have a separate general ledger account for each finance reserve account. I say this because it really is a bank account and not a “receivable” account. If you don’t mix two different checking accounts in one general ledger account, why do you mix more than one finance reserve account into one general ledger account? If you ran a detail general ledger of your combined finance reserve account, how are you easily going to separate the activity? The only way you can do it would be by control number within the account, and only then if you are using a specific control number within the account for each bank and posting all activity for the bank into their specific control number.

If you separate the finance reserves into separate general ledger accounts, you can use separate control numbers for each customer and see how they each clear themselves out when you get paid by the bank. It is much easier to run the schedule after you post the receipts and then give it to your F&I department to find out why you have differences.

If you have vehicles in your inventory schedules which are really company vehicles, you should either move them to company vehicles and depreciate them if possible, or move them to a separate inventory account to track them. This would make it easier if you are also writing them down each month for the estimated amount of depreciation they are incurring.

If you are using one prepaid account for everything, you may want to separate it into prepaid other, insurance, taxes, advertising, etc. You still want to schedule these accounts and use control numbers even if there is only one type of transaction in the account. By doing so, if you need to add another control number to the schedule, it will appear correctly and not be lumped in with the other control number’s activity.

If you have other assets, you should have specific general ledger accounts for each one, as they tend to be more long-term assets which will be around for a while. If you have other assets which are being amortized over time, you should also have an accumulated amortization account to track the amortization you have taken each year.

If you have officer and affiliated company receivables, you should have these accounts scheduled as detail forward accounts and use descriptive control numbers to separate the activity. This will aid you and your accountant in preparing for year-end and not missing something that should show up in the dealer’s personal financial statement and/or tax return for the year.

Think about all of the above accounts and imagine you had to run a detail general ledger history on an account to find a certain type of activity. Wouldn’t it be easier if the account was scheduled as a detail forward type account and it was posted and separated by various control numbers you consistently used from year to year?

Now look at your liability accounts. There are various types such as short-term notes payable, accruals, accounts payable, other liabilities and long-term debt.

Most of the time your short-term notes payables are already separated, such as floorplan. This account is normally scheduled side-by-side with your vehicle inventory accounts as a detailed forward account. If you have other short term notes payable, I would suggest you also schedule these as a detail forward account to track the activity more easily.

You can have multiple accounts payable, accruals and other liability accounts. Most of these are normally scheduled as balance forward accounts due to the fact the detail would become extremely long in the schedules after a few months. The best way to track these accounts is to have separate liability accounts for each different type of transaction, such as advertising, payroll, year-end bonuses, Christmas bonuses, interest, insurance, etc. Within these accrual/accounts payable accounts, you should be using specific control numbers for the vendor or type of transaction so you can run a general ledger history report much more easily in the future.

If you have long-term debt accounts, I suggest you have a separate account for each different lender and use a detail forward schedule type instead of a balance forward type. With these types of accounts, you normally need to review prior activity frequently, and it is easier if it is controlled and all the prior detail is there and easily viewable without running a special report to get the prior detail which makes up a certain balance. This will save you some time running the detail of this account for your accountants at year-end, so they can see the detail by month for accruing interest if needed and for looking for items which should appear on the dealer’s personal financial statement or income tax return.

In the next issue I will review the income statement accounts and how to better track your activity. Until then, have a great month!

Vol. 9, Issue 2