If you run a business in the automotive industry, then you know that maintaining accurate financial records is essential to your business’s financial success. A well-organized Chart of Accounts (COA) is a key part of good bookkeeping and can help you keep track of your financial health, make sound and informed business decisions, and stay compliant with government regulations. In this article, we’ll discuss the basics of COA bookkeeping for the automotive industry. Moreover, we will also provide an overview of the various parts of the chart of accounts and give insights into accounting rules used to record sales and expense transactions for bookkeeping.
A chart of accounts is a list of all the accounts that are used by a business to record transactions in its accounting system. The COA typically provides a complete summary of all the statements included in a company’s general ledger. The COA is important because it provides a framework for recording financial transactions and helps businesses track their financial performance over time. Furthermore, it also makes it easier for businesses to prepare financial statements such as balance sheet and income statement and comply with government regulations.
Hence, for a better understanding of the COA, we have used diagrams and explanations to show you how it works. Each chart of account has a different title, a short description, and a diagram of the chart of account number system to make it simpler for you.
But before all that, we need to look at the overview of the automotive industry.
One of the largest and most significant sectors is the automobile sector. At length, it’s worth more than $2 trillion in total. Therefore global economic development would not be possible without the millions of automobile industry employees.
Hence, the automotive sector produces more than 65 million automobiles each year. Additionally, it’s a massive business with many different participants. Finally, there are three significant types of automobile companies:
Automobile Repair Shops and Automotive Financing Companies are just two examples of the many businesses in the automotive sector.
In addition, automobile dealerships provide a wide range of services, including sales, repairs, inspections, electronic testing, bodywork, and maintenance, to their customers.
When creating a chart of accounts for automotive sales and repair businesses, the process isn’t as complicated as you think.
So, let’s take a deeper look at the chart of the most relevant accounts for the financial reports analysis of the automobile sector.
For a firm to function, it needs a solid financial foundation. So, every transaction you make in your general ledger impacts it.
Creating a chart of accounts is difficult and time-consuming but vital for organizing financial information.
Therefore, many automotive companies had a tough time translating their businesses into accounting language to build up their chart of account number system. But, it’s OK! We are here to provide an overview of the various parts of the chart of accounts including account payable, account recieveables and long-term assets. Also, you can get insights into accounting rules. The rules that we use to record sales and expense transactions for bookkeeping
An automotive firm’s “heart of accounts” list the general ledger accounts it employs to record transactions. Therefore, you should have all the charges you document on a piece of paper.
Additionally, accounts of all kinds are likely to fall into one of the primary categories on your financial statements. Finally, your funds may fall into one of the following categories:
While going through all the different accounts, if you don’t find some of the specifics classified, it’s all right. Just make sure you have a piece of paper handy to mark the unclassified accounts. To sum up, you’ll be able to categorize all your accounts and be surprised by the ones you hadn’t even thought of.
The chart of Account numbers relates to each account and is used to identify the graph of the account’s type. So, it is considered excellent in accounting practice. Consequently, it should be assigned to account names within these categories as a general rule of thumb:
1000 to 1999: Assets
2000 to 2999: Liabilities
3000 to 3999: Equity
4000 to 4999: Income:
5000 to 5999: Expenses
6000 to 6999: Cost of Goods Sold
7000 to 7999: Other Sources of Income:
8000 to 8999: Operating Expenses:
Add the chart of account numbers provided by your accountant when creating your business file.
Therefore, we are going to shed some light on each account’s specifications.
An automotive company’s assets include all the things that make it valuable. There are two sorts of assets: current assets and fixed assets. A recent purchase may be sold or redeemed within a year. Therefore, here are a few examples of typical asset accounts to know about:
Automotive firm liabilities include debts owed and other commitments the company needs to fulfill. Therefore, you can divide them into short-term and long-term. Similarly, it’s a current obligation if the corporation needs to make good on loan within the following year. Therefore, liability accounts include the following:
Equity is a term that describes an automotive company’s book value. So, if you deduct your obligations (debts) from your assets (property), you get your equity (the difference). Also, keeping in mind that your company’s equity accounts are dependent on its IRS categorization is essential (single proprietorship, partnership, or corporation).
Hence, examples of automotive firms and their corresponding standard equity balance sheets.
Therefore, it’s essential to keep separate accounts for each partner or shareholder in a partnership or firm.
Income Accounts track how much money a business makes daily from its regular business activities. So, these are the most popular revenue accounts for companies’ services and items.
Therefore, you can determine the different services an automotive business offers and then create a revenue account in your chart of accounts for each of those services individually. Briefly, Tracking sales and revenue in the same bill is acceptable.
Additionally, costs of goods sold accounts are the appropriate places to put expenses such as merchant account fees and the cost of components for repairs. Hence the following are examples of offerings; however, the list is not exhaustive:
So, use this account to monitor the actual costs of things created or sold. For an automaker, the total price of goods sold (COGS) includes the raw materials and the labor expenditures necessary to assemble the vehicle.
Consequently, there would be no consideration for the expense of transporting automobiles to dealerships or the cost of selling them.
COGS= Beginning Inventory + P – Ending Inventory
Therefore, P is referred to as purchases during some specific period.
However, various inventory monitoring techniques, such as FIFO, LIFO, and average cost, compute the cost of goods sold (COGS). Whereas these accounts generally include information on how much it costs to produce automobiles:
So, for your automobile business, “Other Income” refers to any income that isn’t directly related to your company’s everyday operations. After that, how you might earn extra money are:
Therefore, if your organization doesn’t generally cover these additional costs, they are called “other expenditures.” Hence, those may include:
Therefore, all operating expenditures in a specific industry give you insights into how to sum the total operating expenses, such as sales, general, and administrative costs. So, the following are some of the operating expenses of NIADA (National Independent Automobile Dealers Associations).
Hence, for a complete picture of the automotive business, look at the above-mentioned chart of accounts of the automotive sector.
This section will review different accounting rules for recording sales and expenses in the general ledger.
So, understanding your company operations and the ensuing adequate gross margin requires you to consider the various forms of automobile transactions created by your F&I programs.
Therefore, it’s essential to think about how your F&I program will be structured to document your accounting transactions correctly and have the most critical possible data to examine your company.
Additionally, there are two forms of retail financing: retail prime and subprime vehicle transactions, which should be documented separately in your general Retail ledger using GAAP rules.
A client has agreed to pay $7,500 for a unit in stock; hence, the initial cost was $7,000, but you had to spend at least an additional $500 for reconditioning. So trades are not permitted.
Whereas the $9,500 purchase price of the automobile includes a service contract extension and CL&AH insurance. Whereas the client is taking out a loan to buy the car, and you have the option of reserving the vehicle. Therefore, It would appear like this in the ledger entry:
| Debit | Credit | |
| Cash (down payment) | 1,000 | |
| Vehicle receivable | 500 | |
| Contracts in transit | 10,000 | |
| Sales – used cars – retail. | 9,500 | |
| Cost of sales – used cars – retail | 7,000 | |
| Cost of sales – reconditioning – used cars – retail | 500 | |
| Inventory – used cars. | 7,500 | |
| Finance income | 600 | |
| Finance reserve receivable | 600 | |
| CL & AH insurance income | 300 | |
| Cl & HA insurance payable | 300 | |
| GAP income | 200 | |
| GAP contract payable | 200 | |
| Sales – extended service contract | 1,000 | |
| Cost of sales – extended service contract | 500 | |
| Extended service contract payable | 500 | |
| Sales commission expense – retail | 250 | |
| sales commission payable | 250 |
So, in the case of a retail subprime automobile sale, the ledger entry would include the following extra lines:
| Debit | Credit | |
| Cost of sales – sub-prime bank fee | 600 | |
| Contracts in transit – bank fee | 600 |
So, the “subprime” in the account name would allow you to separate your retail and subprime transactions more efficiently.
Therefore the ledger for a retail cash transaction might appear a little different. The same automobile with a service contract costs $10,500. So, transactions on the ledger might look something like this:
| Debit | Credit | |
| Cash | 10,500 | |
| Sales – used cars – cash. | 9,500 | |
| Cost of sales – used cars – cash | 7,000 | |
| Cost of sales – reconditioning – used cars – cash | 500 | |
| Inventory – used cars. | 7,500 | |
| Sales – extended service contract | 1,000 | |
| Cost of sales – extended service contract | 500 | |
| Extended service contract payable | 500 | |
| Sales commission expense – cash | 250 | |
| Sales commission payable | 250 |
The following is an example of an entry in a wholesale transaction ledger.
| Debit | Credit | |
| Cash or vehicle retail | 4,000 | |
| Sales – used cars – wholesale. | 4,000 | |
| Cost of sales – used cars – wholesale | 3,000 | |
| Cost of sales – reconditioning – used cars – wholesale | 500 | |
| Inventory – used cars. | 3,500 | |
| Sales – extended service contract | 1,000 |
They put $1,000 down and get an additional service contract as part of the arrangement. Then finance the rest of the purchase. Thereafter, it would appear like this in the ledger transaction:
| Debit | Credit | |
| Cash | 1,000 | |
| Notes receivable – BHPH | 9,900 | |
| Sales – used cars – BHPH | 9,500 | |
| Cost of sales – used cars – BHPH | 7,000 | |
| Cost of sales – reconditioning – used cars – BHPH | 500 | |
| Inventory – used cars. | 7,500 | |
| Sales – service contract – BHPH | 1,000 | |
| Cost of sales extended – extended service contract – BHPH | 500 | |
| Extended service contract payable | 500 | |
| GAP income – BHPH | 200 | |
| GAP contract payable | 200 | |
| Sales commission expense – BHPH | 250 | |
| sales commission payable | 25 |
These are just a few instances of the many sorts of automobile sales that might occur at your dealership.
Whereas several states may impose sales tax, license and title fees, and other taxes and fees, these aren’t comprehensive suggestions.
Additionally, some dealerships include a DOC fee in their total cost of goods and services as part of the unlimited cash and receivables owed.
So, please let us know if these examples have helped you better grasp the accounting aspects of your sales.
So, the accounting rules classify costs as expenditures, and GAAP performs bookkeeping.
Car companies spend money on advertising, sales promotion, and personal commission to boost their sales of automobiles to keep their operations functioning efficiently.
Therefore, after each financial month ends, must report expenses. Therefore, transactions in the general ledger are similar to entries in the automotive company‘s journal.
So, every expenditure accounting entry must have a debit and a credit to employ double-entry accounting. May use cash or credit cards to pay for company expenses.
Therefore this transaction requires the gathering of necessary data by you. Hence, Invoices, cash receipts, or any other form of evidence of payment must accompany any journal entries.
So, keep a record of your expenses in a journal. At the same time, the document should contain the date of the transaction, the account number and title, the dollar amount, and a brief description. Therefore, debits are first, followed by credits, in decreasing balance sequence.
So by using this formula, you can calculate your car companies operating expense ratio.
(COGS+OPEX) / Revenues = OER
For Example,
Ask about the most recent office supply purchase from your organization’s invoice. Also, the transaction date, the amount of the bill, and the delivery date should stand out. So, NIADA paid $100 in cash for office supplies on April 17, 2011.
Therefore, to record your thoughts in a journal, Debit $100 for office equipment and credit $100 for cash in your company’s general ledger account number. Straightforwardly, may refer to the equipment as “purchased.”
As we know, you deal with large sums of money in your automotive business. So, having your records in order is essential. However, you’re not an expert in accounting. Therefore, anyone who doesn’t want to spend much time writing invoices and monitoring money on spreadsheets is missing out.
Therefore, we’re here to assist you in searching for a trustworthy financial consultancy firm to get bookkeeping services for your car company.
So, you may save time and money by working with the professionals at Oak Business Consultant. In addition, keep records of your company’s spending and generate precise reports in seconds while sending professional invoices accordingly.
In conclusion, our goal with this article about COA – Bookkeeping For the Automotive Industry is to grasp better the chart of accounts and how you may utilize them to manage your bookkeeping services. Finally, contact us at any time if you have any concerns or inquiries.
Discover our comprehensive Accounts and Bookkeeping services, designed to streamline your financial management. From meticulous record-keeping to precise financial analysis, our expert team ensures your books are in impeccable order. Trust us to provide clarity, accuracy, and peace of mind as we handle your financial affairs with utmost professionalism and care.
