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Cost of Goods Sold - Automobiles

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    Cost of Goods Sold - Automobiles

    I once worked for a new and used car dealership (large corporation) who costed each car individually without regard for beginning-ending inventory. A card was kept on each auto which included factory cost, purchase price, parts and labor for reconditioning, maintenance costs, and every other possible expense which might be attributed to the vehicle. When it was sold, there was no question of the gain/loss on that particular sale. They still took inventories and forwarded all this information to their accountants, but I never saw any tax returns, so I don't know how it was listed there.

    On the other hand, over the years, I've noticed used car dealers who file on a "C" and arrive at COGS by carrying their ending inventory forward as beginning inventory the next year, adding purchases, and subtracting the ending inventory, often end up with nonsensical figures as cost (even to the point of a loss in the gross). Now, I don't know if that's because of an understatement of sales or if they don't (or do) know what they're doing. But if I could do it the first way (big corp method), I think it would be much more accurate.

    So, my question is: even though the "C" clearly asks for beginning & ending inventory, could you disregard those, just list the cost of sold cars in "Purchases" (hmmm, I may have just answered my own question) and go with that as cost? That's how it was done (accurately) on the cards -- don't know about the tax return.

    P.S. I've known a few shade-tree car dealers who did cost only each car individually, but they claimed not to keep any inventory, so "Purchases" was their sole cost and there were no begin-end inventories.
    Last edited by Black Bart; 03-20-2007, 06:32 AM.

    #2
    I like the first method

    I've never done a car dealership return before, but actually recieved a call from a car dealer yesterday who I am meeting with on Friday, so this is a very timely post, for me at least. I'll have to ask him how he costs his inventory (or if he even has thought about it).

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      #3
      >>So, my question is: even though the "C" clearly asks for beginning & ending inventory, could you disregard those, just list the cost of sold cars in "Purchases" (hmmm, I may have just answered my own question) and go with that as cost? That's how it was done (accurately) on the cards -- don't know about the tax return.<<

      Many years ago I was the business manager of a new car dealership and left that job to work for a CPA firm as an auditor of car dealerships throughout several states. During that time I prepared many car dealership tax returns.

      Yes.. specific costing is the only accurate way to determine cost. However, since there is a beginning inventory and an ending inventory it should be shown on the tax return with the net adjusting the purchases line so that the ending cost of goods sold is accurately shown as the specific vehicles sold costs.

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        #4
        Thanks Jack

        Originally posted by OldJack View Post

        Many years ago I was...an auditor of car dealerships throughout several states.
        So that's why we got checked so often back then (early 70s). And all along I thought it was because of our manager who kept charging everything in sight to "Warranty." He always said "They (GMAC) expect so much of that." About five years ago, I ran into our old wash-rack guy and asked "Whatever happened to the manager?" He said, "Dunno. I washed cars for him again for a while back in the 80s, 'til one day the FBI drove up, put him in the back seat, and hauled him off."

        Since you've so clearly illuminated and solved my problem for me, I want you to know that I humbly apologize and take back everything I said about CPAs in that "Plastic Surgery" post on the preceding page (never mind if you haven't read it). You are obviously not an overrated quack, but rather an underrated one and I will be glad to furnish references for you upon request.

        Best regards, BB

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          #5
          Black Bart you never cease to amaze me. I just now read the Plastic Surgery post and you gave me a good laugh.

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            #6
            Jack

            Originally posted by OldJack View Post

            ...inventory...should be shown on the tax return with the net adjusting the purchases line...
            Just curious, but, since the cards and the inventories rarely matched, did you have to track it down or could you just make an adjusting entry to "plug" the (+/-) gap in Purchases?

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              #7
              Originally posted by Black Bart View Post
              Just curious, but, since the cards and the inventories rarely matched, did you have to track it down or could you just make an adjusting entry to "plug" the (+/-) gap in Purchases?
              In most any inventory accounting system it is expected that there will be small adjustments to bring book inventory into agreement with physical count. That adjustment can be with the purchases/COGS or as an other miscellaneous expense account depending upon the accounting system and amount. Cost of goods sold is the normal adjustment account with unusal adjustments amounts as other expenses.

              If it is more than a small adjustment, it must be tracked down. Tracking down in the case of one Chevy dealer, I found that the trusted bookkeeper was writing and signing checks to herself, to the tune of several thousands of dollars, and charging it to inventory. The owner thought it just an error in bookkeeping and wanted me to make an adjusting entry, but I insisted on tracking it down. He prosecuted the employee but never collected the full amount she owed.

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