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Level 1

Journal entry to increase inventory

We are a dealership. I need to increase the cost of a vehicle so the balance sheet inventory is correct. We receive the vehicle at our cost, but in order to put it on the lot we need to detail it, add parts, etc To increase the cost of the car I want to do a journal entry , so I would debit inventory used or new cars and credit what type of account for parts and labor? an expense account? or an Income account?

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Best answer 12-10-2018

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ProAdvisor

You would have to make an inventory adjustment to change...

You would have to make an inventory adjustment to change the cost on a vehicle. A journal entry will not affect an inventory item.

View solution in original post

14 Comments
ProAdvisor

You would have to make an inventory adjustment to change...

You would have to make an inventory adjustment to change the cost on a vehicle. A journal entry will not affect an inventory item.

View solution in original post

Level 15

@ lily Labor for detailing the car, unless you pay an in...

@ lily

Labor for detailing the car, unless you pay an independent contractor, is already an expense, it is part of payroll if you have an employee do it.

If you are using inventory type items for the car, as stated never ever use inventory asset in any transaction.

In desktop this is fairly easy to do
create a current asset account called car set up or something

When you use parts from inventory to get the car ready to sell, use inventory adjust, set the adjusting account to the car set up account and lower the qty of parts used.  If you do pay an outside contractor to detail the car, use this account as the expense for his payment.

When the car is ready for sale, use inventory adjust, set the adjusting account to the car set up account, and set the adjustment TYPE to value.  Increase the car item value by the total amount in the car set up account and save

the car item now has an updated cost, the car set up account is zero balance an can be reused for the next set up


Level 15

"except why Rustler was waiting until the vehicle was sol...

"except why Rustler was waiting until the vehicle was sold to add it to inventory."

That's not what he explained. He has the item already in stock, then he explains how to adjust it and relieve your own Parts in stock, as well as how to adjust it and Bring in WIP values:

"create a current asset account called car set up or something

When you use parts from inventory to get the car ready to sell, use inventory adjust, set the adjusting account to the car set up account and lower the qty of parts used.  If you do pay an outside contractor to detail the car, use this account as the expense for his payment.

When the car is ready for sale, use inventory adjust, set the adjusting account to the car set up account, and set the adjustment TYPE to value.  Increase the car item value by the total amount in the car set up account and save

the car item now has an updated cost, the car set up account is zero balance an can be reused for the next set up"


"I personally disagree somewhat with Rustler as far as needing a WIP."


Well, if you have no outside expense to add to that inventory item, you don't need to accumulate that anywhere so that the Adjustment function can be used. The point of this topic is that a JE cannot be used for managing QB inventory item Type transactions.


"There was a New Car Sales Journal, Used Car Sales Journal, Cash Disbursements Journal, Cash Receipts Journal, etc.  Then in the 80's we came out with a new system which is the basic platform that is still used today.  It still uses separate journals for each type of transaction.  There is a new façade but the bones are still the same. The GM Manual uses journal entries, but they are not all General Journal Entries."


Open any transaction in QB, such as the Inventory Adjustment, and use Ctl Y to see the debits and credits are right there. The change since the 1980s is that we let computer programs, which have interfaces = tools and functions, do the raw accounting for us.
Level 2

Agreed.

Agreed.
Level 15

"In the dealership world we technically consider this "sp...

"In the dealership world we technically consider this "specific inventory" and the parts inventory is "perpetual inventory". "

Using QB-ese, means that if you are using an Inventory Item Name for managing this, you are by definition doing Perpetual inventory. Whether you then buy more, sell them, restock etc, is up to how you manage this inventory item.

Periodic inventory can be done in QB, easily, as well. That would be, for example, leaving WIP in WIP until a Spec Home is sold, and not bothering to try to manage that by reference to an Inventory Item.

So, "Specific" inventory in QB = One Uniquely named Inventory Type item that will never be used for anything, again, such as By VIN. But that also still is part of Perpetual Inventory management, because it is By Item Name, with Quantity Cost and Price available.

"WIP is debited from payroll and credited when the repair order is complete and the work is charged to the vehicle inventory."

Yes, you can use QB payroll and accounting like this, just fine. For instance, a Construction spec home builder would "job track" the time and costs, and the Payroll data flow is whatever you need, but now, for QB payroll, the Payroll Item is linked to WIP or COGS or whatever matches your accounting needs, as would be done in a production environment.

"The WIP account used in this person's example is really just an inventory clearing account."

Of course it is. That's what any Asset account performs for you. You accumulate something, you get rid of that something. Values move in and out. But that isn't Inventory Clearing. It's WIP = value Clearing. It doesn't define that the end result is Inventory. You might be using it as that, for your needs.

"
it is unfortunate that the workaround for this specific inventory is so cumbersome on QB."

All of this is yours to set up and use to meet your needs. It isn't cumbersome, unless you set up a Cumbersome process.

I have attachments for how easy it is to do for Spec projects or Flipping.

"The dealership systems are very costly and would be overkill for my client's tiny used car lot.  I am open to other software options but I am mostly familiar with the big 3 auto systems which again would not work here."

I don't understand: are you QB users about Not using QB?

We are cheap, too, or would not be using QB.

In 2006, for QB 2007, Intuit changed the database from flat tables to a true relational database, because they bought  into the SyBase database engine. When I worked for a Capital Equipment manufacturer (now part of Applied Materials), we used that tool; that is why, along with my programming background, I know how powerful the functions of QB are. It just takes a bit of setup.

Everything you asked so far is actually pretty easy to do in QB.
Level 2

I have not actually asked anything except why Rustler was...

I have not actually asked anything except why Rustler was waiting until the vehicle was sold to add it to inventory.  As an instructor, trainer and consultant with an MBS in Accounting I feel this is a cumbersome process to teach a lay person and inconsistent with automotive accounting procedures.  I'm not sure why you are going through all of this detail with me.  My only question was to Rustler "was I missing something"?
Level 12

"It would be nice if QB would work the way that auto deal...

"It would be nice if QB would work the way that auto dealership accounting was designed"

I see no conflict between the GM Finance Manual, developed probably in the 20's or 30's and still relevant whether for an old style dealer in the last century pre-PC selling 1 car per week or for a modern mega dealer selling a car a minute. Accounts are accounts and every account GM calls for can be created in QB.

I personally disagree somewhat with Rustler as far as needing a WIP.  You acquire a vehicle, new or used, free and clear or floor-planned, and it is an inventory asset. You add costs to it same as you would adding a new roof or furnace to the shop, or a rental property, except you do not depreciate the vehicle (other than the procedure GM outlines in adjusting used inventory periodically I suppose so that you never sell at a loss) When you sell the vehicles you remove them from being an asset. What is inventory but specifically listed inventory. Whether it has a VIN or is one of many makes little difference.
Level 2

The conflict is that on QB you cannot easily add equipmen...

The conflict is that on QB you cannot easily add equipment or repairs to the inventory in "Enter Bills" without going through a clearing account and adjusting the inventory.

You adjust the inventory periodically because technically you are supposed to maintain your inventory and the lower of cost or market.  As vehicles age and new model years come out, their market value decreases, hence the writedown.
Level 12

Create an Item for additions for each inventory vehicle o...

Create an Item for additions for each inventory vehicle on hand and bill or charge that item and it posts directly to the asset, Yes you get overrun with items that over time become obsolete - but the beauty is you can edit the item to post to a different inventory asset at any time without affecting historical postings. (or make the obsolete items inactive) But that right there is a vote for using a limited number of items and posting to a single WIP, removing the completed vehicle into its own asset account.

Each vehicle can be a Job. When complete, receive payment (internal) deposit the internal Undeposited Funds to Other Current Asset account for the vehicle itself. If you keep the vehicles as OCA instead of FA you can deposit directly to it. Saves a step.

Oh, and GM Manual relies on using journal entries for almost everything
Level 2

Actually Reynolds and Reynolds the company I worked for b...

Actually Reynolds and Reynolds the company I worked for basically wrote the process for electronic automotive accounting.  In the old days we used "Sources" which were different journals for each type of transaction.  There was a New Car Sales Journal, Used Car Sales Journal, Cash Disbursements Journal, Cash Receipts Journal, etc.  Then in the 80's we came out with a new system which is the basic platform that is still used today.  It still uses separate journals for each type of transaction.  There is a new façade but the bones are still the same. The GM Manual uses journal entries, but they are not all General Journal Entries.


I think I like the first idea better. Purchasing the car to inventory and then using a clearing account as a mechanism to transfer the added costs to the inventory as the costs are incurred.  I think it will be easier for my client to manage. At the end of the day, the clearing account needs to be "0".

Thanks for your help.
Level 15

"Someone suggested a WIP account as a work around" Yes, b...

"Someone suggested a WIP account as a work around"

Yes, because that is an Asset with Multiple inputs = accumulating the total invested. This is done for any process that improves the asset, or the asset cost comes from multiple inputs such as Purchase Cost, Import Duties, Broker Fees, improvement labor and materials, etc.

"leaving all of the costs in the WIP until the unit is sold."

No, you don't have to Leave it there. If you want to manage this as a unique inventory item, you them "buy from WIP" by using a Vendor name of WIP, and listing the WIP account on the Expenses tab with the negative total; put the real item on the items tab with the total Basis. Hit re-calc. This is a $0 Bill. Now your product is On Hand in inventory and fully costed.

"I toyed around with adding the unit into inventory immediately and adding the additional costs to the WIP account. Then turning right around and adjusting the inventory value by doing and inventory adjustment using the WIP account."

Yes, that works, too. The real issue is Dates Matter. Pay attention to the Date reporting.

"That cleared the WIP account and keeps the inventory value for all of the units correct.  I worked in the auto industry for over 30 years and find it hard to believe that QB can't get perpetual inventory right."

This isn't Perpetual Inventory. This is specific Items Names as "in progress." This is Production, really.

WIP = Work in Progress

CIP = Construction in Progress

Law firm = Advanced Costs

Lots of Industries use Other Asset tracking for expenditures for operational requirements.


Heck, I set up a Corrections Facility that is all Liability accounting, of three liability types.

Level 2

WIP in the dealership world is increased when a technicia...

WIP in the dealership world is increased when a technician performs labor to a vehicle but has not yet completed it at the end of the pay week.  WIP is debited from payroll and credited when the repair order is complete and the work is charged to the vehicle inventory.  The WIP account used in this person's example is really just an inventory clearing account...a way to get the work that is done to the vehicle (likely from an outside source) into the vehicle's inventory.  It really is a temporary holding spot and not a true WIP account.


In the dealership world we technically consider this "specific inventory" and the parts inventory is "perpetual inventory".  


Again, it is unfortunate that the workaround for this specific inventory is so cumbersome on QB.  The dealership systems are very costly and would be overkill for my client's tiny used car lot.  I am open to other software options but I am mostly familiar with the big 3 auto systems which again would not work here.
Level 12

If you post the vehicle as an inventory item you have to...

If you post the vehicle as an inventory item you have to post addition costs to same item. If you posted cost to a general inventory account you would post additional costs to same. However throwing all units into one overall account demands keeping a separate inventory and cost log - all GM approved, so it certainly passes muster.


I suggest this http://gm.acctmanual.com/Misc/gm_acct_manual%20v2-2-1-1.pdf as required reading as it will give you definitive answers on where and how to post costs in any accounting system.

Level 2

It would be nice if QB would work the way that auto deale...

It would be nice if QB would work the way that auto dealership accounting was designed, but it doesn't.  Someone suggested a WIP account as a work around, leaving all of the costs in the WIP until the unit is sold.  I toyed around with adding the unit into inventory immediately and adding the additional costs to the WIP account. Then turning right around and adjusting the inventory value by doing and inventory adjustment using the WIP account. That cleared the WIP account and keeps the inventory value for all of the units correct.  I worked in the auto industry for over 30 years and find it hard to believe that QB can't get perpetual inventory right.

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