Cost of Goods accounting for used car dealership

To move inventory parts to a used car WIP you basically have to sell the parts to it, same with repair reconditioning labor if you have employees. Some costs add to your basis in the vehicle, some are just cost of sales. 

Still valid after 3/4 of a century is the GM Accounting Manual as a guide to accounts and accounting for auto dealers. It is proprietary but easily found (gm.acctmanual.com) to view 

Look at account 240 Used Vehicles to see what is added to inventory asset and examples of the sale of a vehicle. See account 446B for more on how to handle sale of used vehicles.

In a nutshell, the inventory value of a used vehicle is, the lower of trade-in allowance or wholesale appraisal or the purchase price if bought outright. Added is internal selling price of labor and materials for reconditioning and travel costs to acquire pkus any auction fees.

Costs such as state inspection, full tank of gas, "free" floor mats, final wax are not COGS but ordinary cost of sales

The NAADA, North American Auto Dealer Assoc , surely has publications on accounting for members, and every dealer small or large should belong

I appreciate the information.  However I am not looking for definitions but looking for the entries and how they are made in QuickBooks.

@DB67

What version of QuickBooks Online do you have - Plus, Essentials, Simple Start or Self Employed? Or QuickBooks desktop?

QuickBooks desktop Pro 2018.  I don't believe that it is online.

@john-pero

Just my opinion here, I know you like the GM manual. The GM accounting manual is GAAP based, it is an accounting requirement for publicly listed companies, and not all of GAAP is accepted by the IRS.

I am a proponent that small businesses should not use GAAP, but should keep their books per the IRS - I mean why pay someone to keep your books per gaap, then pay them to make IRS adjusting entries at the end of the year, and pay them yet again to reverse those adjusting entries for the next year (rhetorical).  Or as is more common, keep two sets of books.

The IRS is specific, cost is composed of the purchase price ( or trade in allowance), plus all costs to get it on hand and to get it ready for sale.

 Are you referring to the type of scenario below?

You purchase a vehicle for $ X

You put $ Y worth of expenses in for repairs

You sell vehicle for $ Z price

You need to show your costs as well as expenses and overall income per vehicle such as shown in report below?

Thank you for the information and the printout example.  This does help me.   What I am really looking for is the process and entries to make in QuickBooks from time of purchase thru rehab to inventory and than with the sale of the vehicle to make the entries.  I am using a cash basis.  At this time it appears that I have to make two entries to complete this process.

When you purchase the vehicle, do you purchase it outright are are you using for example an auction house that extends you a line of credit and you have to make payments over time and then pay it off when you sell it?

All of the vehicles are purchased for cash.  On occasion some bank flooring is used.

I appreciate your detail for my challenge.  I have been counseled to not put reconditioning expenses into cost of goods until a sale has taken place.  I have set up all of the accounts that you have described.  Presently I have set up a WIP account as a bank account where I am putting all of the entries into inventory.  When a sale takes place I am taking from Inventory and posting to the appropriate P & L account.  Looks like the business could have a sizable amount of money spent on inventory that cannot be recognized for tax purposes until a sale takes place which could be in a different year.

I am using the stock number for all of the entries which is giving me the class for my reports.   When preparing a sales receipt I cannot get the costs into their expense account.  I am using a GL entry to move those items from inventory to their appropriate account.  In essence this makes the process a double entry.  I was hoping to find a simpler way to do this, particularly for the initial posting of the existing inventory.  All activity is being done on a cash basis.

Here is a youtube video I posted with the step by step directions for the example I described in this post.

https://www.youtube.com/watch?v=AUysskdpP8E&t=1262s

Thank you for creating this presentation.  What QuickBooks program are you using.?

This was done in QuickBooks Online Plus.  If you're using QB Desktop, you should be able to do the same type of scenario.  I see that Class tracking is available in QB Desktop Pro and Premier.

Great U Tube.  There are some key differences in format when using the desktop pro program.  Getting the items into inventory can be difficult to get done.  Since I do not use the billing feature I have had to use a WIP account.  When doing this I have not been able to get a class established.  Also I am being told that all reconditioning expenses cannot be recognized until a sale takes place, so those expenses are carried as inventory.  Normal lot costs including detailing are recognized immediately.  Does the Class program have to be turned on somewhere in the software? 

This process certainly is much easier with the On Line software.

I am still interested in seeing the exact debit and credit of accounts using the Desktop Pro Chart of Accounts.

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@DB67 wrote:

Great U Tube.  There are some key differences in format when using the desktop pro program.  Getting the items into inventory can be difficult to get done.  Since I do not use the billing feature I have had to use a WIP account. 

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I'm not sure what you mean when you say you aren't using the billing feature and unfortunately I'm not familiar with how the WIP account would work in your specific scenario. 

 

When doing this I have not been able to get a class established. 

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You can access the class list under LISTS at the top of the screen and then CLASS LIST.  I DID notice (unless I missed it) that it doesn't look like you can associate a class with an inventory items in the items setup in the desktop version the same you can in online version.

 

Also I am being told that all reconditioning expenses cannot be recognized until a sale takes place, so those expenses are carried as inventory.  Normal lot costs including detailing are recognized immediately.  Does the Class program have to be turned on somewhere in the software? 

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To my knowledge the class feature should already be turned on

 

 

This process certainly is much easier with the On Line software.

 

I am still interested in seeing the exact debit and credit of accounts using the Desktop Pro Chart of Accounts.

 

 

I'm sorry that I don't have as much experience with the desktop version.  If some of the other well versed people on this community don't have any other ideas on how to handle this situation, I would recommend reaching out to desktop tech support and explaining what you're doing and maybe even direct them to the youtube video as an example and let them know you're trying to do that in desktop with a few differences (such as using the WIP account).

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Thank you for all of your help.  I may reach out the tech people.

Sounds good.

DesertMarsall, I watched your YouTube video on setting up a vehicle with floor plan, but I am needing additional help for vehicles bought at wholesale dealers also. I could really use your help.

Could you email me I have some specific questions.  [email address removed] Thanks! 

Are you using your WIP account to account for inventory + reconditioning? Or is your WIP account just reconditioning?

If you have 2 separate asset accounts (1 for reconditioning & 1 for Inventory): 

Credit "Inventory" asset account ---  $the principal cost of car

Debit "Cost of Vehicle" COGS expense account ---- $the principal cost of the car

Credit the "WIP Reconditioning" asset account --- $the reconditioning costs associated with that car

Debit your COGS Reconditioning account ---- $the reconditioning costs associated with that car

This method of using class is great. Works well for the simple preparing and selling a vehicle. What about trade ins though? How can I enter a trade in, have that show as a credit to the purchase price as create a new item for it? I'm using QB desktop. I can create the item for the trade in with its own class and that works fine, but how to I account for the cost value of the new item? I'm technically purchasing in on an invoice to the customer. Putting in a -1 qty make the customer invoice work out but it doesn't allow a cost for the item that will be later sold on a new invoice.

Good morning,

Is there any chance you could send me the video showing hot so set up accounts? Also do you have anything that explains how to best use the class and project portion of quickbooks? I have the online Plus version.

Thank you

Travis

[email address removed]

Hi--wouldn't the reconditioning expenses for the vehicle be classified as Cost of Goods Sold rather than ordinary Expenses?