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Automotive Dealership

Automotive Dealership. Accounting Principles. Purposes of Accounting. Monitor Financial Health Evaluate Operating Controls Provide Planning Information. Evaluate Operating Controls. Via Financial Statements Dealer Income Statements Dealer Balance Sheets Via Analytical Feedback

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Automotive Dealership

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  1. Automotive Dealership Accounting Principles

  2. Purposes of Accounting • Monitor Financial Health • Evaluate Operating Controls • Provide Planning Information

  3. Evaluate Operating Controls • Via Financial Statements • Dealer Income Statements • Dealer Balance Sheets • Via Analytical Feedback • Financial Ratios • Versus Established Goals

  4. Provide Planning Information • Benchmarks for Employees and Managers • Periodic Analysis • Correction of Out-of-Line Conditions

  5. Basic Accounting Equation • Assets = The “Things” A Business Owns • Liabilities = The People A Business Owes • Net Worth = The Net Value of a Business (Owner’s Equity)

  6. Double Entry System • T-Account Format • Debits • Credits

  7. T-Account Format • Assets and Debits on Left • Liabilities and Credits on Right • Firm Net Worth on Lower Right

  8. T-Account/Double Entry Basics • Each transaction impacts Asset, Liability or Net Worth account balance • Assets, Liabilities, and Net Worth must increase or decrease equally

  9. Debit Cash Credit Customer Deposits Transaction: New Car Sale with Cash Deposit

  10. Debit Inventory, New Vehicles Credit Wholesale Finance Liability, New Vehicles Transaction: Dealership Purchases Vehicle from Factory

  11. Debits Contracts in Transit Customer Deposit Due from Financing Institution Inventory-Used Vehicles Credits Sales, New Vehicles Accrued Sales Tax Accrued License and Title Finance and Insurance Income Transaction: Sale of Vehicle on Conditional Sales Contract

  12. Transaction: Sale of Vehicle on Conditional Sales Contract • Overallowance Illustration • Vehicle Selling Price 18980 • Trade Value 6500 (Actual Trade Value: 6000) • Dealer Overallowance 500 • Two Methods for handling overallowance

  13. Debits Cost of Sales Credits Vehicle Inventory Transaction: Sale of Vehicle

  14. Debits Accrued Sales Taxes Accrued License and Title Tax Credits Cash Transaction: Account for Sales Tax and License Fees

  15. Debit Wholesale Finance Liability, New Vehicles Credit Cash Transaction: Settle Finance Liability on New Car

  16. Debit Work in Process-Parts Work in Process-Mechanical Credit Inventory-Parts Accrued Payroll Transaction: Dealership Reconditions Vehicle- In Process

  17. Debit Inventory, Used Vehicles Cost of Sales, Labor, Internal Credit Sales-Labor- Internal Inventory, Work in Process, Labor Transaction: Dealership Reconditions Vehicle-Close R.O.

  18. Debit Inventory, Used Vehicles Cost of Sales-Parts Credit Sales-Parts-Internal Work in Process-Parts Transaction: Dealership Reconditions Vehicle-Close R.O.

  19. Debits Cash Sales Cost of Sale, Used Reconditioning, Used Vehicles Credits Sales, Used Vehicles, Retail Accrued Sales Tax Accrued License and Title Tax Inventory, Used Vehicles Transaction: Reconditioned Vehicle Sold for Cash

  20. Debits Cash on Hand Credits Cash Sales Transaction: Used Vehicle Delivery

  21. Debits Customer Accounts Receivable Cost of Sales, Customer Labor Credits Sales, Customer Labor Inventory, Work in Process, Labor Transaction: Labor Sale to Customer (Open Account)

  22. Debits Factory Claims Cost of Sales, Warranty Claims, Labor Cost of Sales, Warranty Claims, Parts Credits Sales, Warranty Claims, Labor Sales, Warranty Claims, Parts Inventory, Work in Process, Labor Inventory, Parts Transaction: Warranty Work Performed

  23. Debits Accounts Payable-Factory Credits Factory Claims Transaction: Credit Received from Factory for Warranty Work

  24. Debits Inventory, Parts Credits Accounts Payable Transaction: Parts Purchase on Open Account

  25. Debits Accounts Payable Credits Cash Cash Discount Earned Transaction: Payment for Parts Purchased on Open Account

  26. Debits Customer Accounts Receivable Cost of Sales, Parts, Wholesale Credits Sales, Parts, Wholesale Inventory, Parts Transaction: Parts Sold on Open Account

  27. Dealership Balance Sheet • Snapshot of Dealership’s Financial Status • Captures Dealership’s Historical Financial Performance

  28. Balance Sheet Components • Asset Accounts • Liability Accounts • Net Worth Accounts

  29. Current Assets: Cash • Cash on Hand • Cash in Bank • Contracts in Transit

  30. Current Assets: Receivables • Total of Accounts Receivable • Sum of Notes Receivable-Customer, Accounts Receivable-Customer, less Allowance for Doubtful Accounts

  31. Current Assets: Inventories • Vehicle Related • Demonstrators • New Cars and New Trucks • Used Cars and Used Trucks • Other Automotive • For inventory purposes, valued at cost

  32. Current Assets: Inventories (LIFO) • Last-in-First-Out Inventory Valuation Method

  33. Current Assets: Inventories • Parts and Mechanical Department Related • Parts and Accessories • Tires • Gas, Oil, and Grease

  34. Current Assets: Inventories • Parts and Mechanical Department Related (Continued) • Paint and Body Shop Materials • Sublet Repairs • Work in Process Labor • Other • Miscellaneous Assets Received in Trade

  35. Current Assets:Cash Equivalents • Securities • Factory Receivables • Due from Finance Companies

  36. Current Assets:Cash Equivalents • Warranty Claims • Insurance Commissions Receivable • Prepaid Expenses • Taxes • Insurance • Other

  37. Current Assets: Total • Equals Total of Cash Receivables Inventories Cash Equivalents

  38. Working Assets • Driver Training Vehicles • Lease and Rental Units • Lease and Rental Accumulated Depreciation

  39. Current Assets + Working Assets = Total Current and Working Assets

  40. Fixed Assets • Land • Buildings • Equipment • Accumulated Depreciation

  41. Other Assets • Life Insurance-Cash Values • Notes and Accts. Receivable- Officers • Notes and Accts. Receivable- Others • Other Investments and Miscellaneous Assets

  42. Total Assets Equals: Total Cash and Contracts + Total Receivables + Total Inventory + Working Assets + Fixed Assets + Other Assets

  43. Current Liabilities • Accounts and Notes • Accruals

  44. Current Liabilities: Accounts and Notes • Accounts Payable • Notes Payable • Credit Balances and Deposits

  45. Current Liabilities: Accruals • Interest Payable • Wage-Related Payables • Insurance Payable • Taxes & Other Payables

  46. Long-Term Liabilities • Long-Term Debt • Mortgages Payable, Real Estate

  47. Total Liabilities = Total Current Liabilities + Total Long-Term Liabilities

  48. Net Working Capital Formula: Total Current & Working Assets + Qualified Loans to Dealership + Accumulated LIFO Write-Down - Total Current Liabilities & Long-Term Debt

  49. Net Worth • Capital Stock & Additional Paid-In Capital • Retained Earnings • Net Profit or Loss, Year to Date

  50. Dealership Income Statement • Measures Dealership Profit and Loss Performance for a Given Time Period • Compiled from Individual Department Profit and Loss Performance

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