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I have a question about how to handle trade-ins with a used

car dealer. Should they be...
I have a question about how to handle trade-ins with a used car dealer. Should they be included in purchases, also they have floor planned inventory. should that part of their inventory be included in yearend for cogs.
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Answered in 12 minutes by:
10/2/2008
Merlo
Merlo, Accountant
Category: Tax
Satisfied Customers: 9,783
Experience: 25+ years tax consulting. Specializing in returns for US citizens living abroad
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Hello timt,

 

On a trade in, the full sales price of the car before trade in allowance is a credit to sales. The trade in allowance is a debit to inventory. The actual net price is debit to cash account.

 

I am not sure what you mean by "planned inventory". At year end, actual inventory on hand should be used in calculating cost of goods sold.

 

If this was helpful please press the Accept button. Positive feedback is also appreciated.

 

Thank you.

 

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Customer reply replied 9 years ago

The other part of my question is about the inventory that is floor planned, which is purchased through a line of credit. should that be included in year end inventory?

Hello again timt,

 

The only inventory that should be included in year end figures is actual inventory on hand.

 

If there has been a prepayment made for inventory not yet received, that should be posted to a prepaid inventory account, separate from actual inventory on hand.

 

 

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Customer reply replied 9 years ago
It also seem that if we pick up the full sales amount and also add the trade in to inventory we are picking up the amount of the trade-in twice. The inventory has not been prepaid it has been purchased through a line of credit.

Hello again timt,

 

As an example, say they sold a car for $10,000 with no trade in. Your entry is $10,000 sales and $10,000 to cash. If they allowed a trade in for $2,000 on a car, they still have a $10,000 sale, but now also a $2,000 purchase and the balance is cash paid.

 

As far as the inventory situation, if they have brought in cars using a line of credit, then if the cars are actually on their lot at year end they are included in the inventory. It is just listed as a debit to assets and a credit to A/Payable.

Merlo
Merlo, Accountant
Category: Tax
Satisfied Customers: 9,783
Experience: 25+ years tax consulting. Specializing in returns for US citizens living abroad
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