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Parts Inventories

Parts Inventories

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A large part of any dealership’s operations (and generally a big profit center) are the parts and service departments, but sometimes these seem to be the most neglected aspects of the dealerships operations. From analyzing open repair order reports to reconciling the parts pad to the general ledger, there are a lot of moving pieces to the dealership’s “fixed operations.”

Parts inventories are a large cash outlay for dealerships, and not reconciling the general ledger amounts to the amounts showing on the parts management reports can be leaving your dealership open for a rude awakening when the time comes around for an annual physical. Some best practices to help with the reconciliation process and to help manage this inventory are:

  • Perform bin counts – Constant bin counts help with a number of things, i.e. spotting obsolete inventory, isolating any discrepancies between actual items on hand and what the computer system states is on hand, as well as making any sticky fingered employees aware that you are watching your inventory levels.
  • Keep the accounting department “in the loop” – When changes are made to the parts pad as the result of bin counts, or returns are sent to the factory, or when parts are scrapped due to obsolescence, let the accounting department know. This will allow them to reflect these changes on the general ledger, which will more accurately reflect the balance of the parts inventory, but in the case of returns, it will allow the accounting department to track money due to the store.
  • Perform a full physical inventory – This should be done at least annually, and needs to be carried out with the assistance of both the accounting department and the parts department.
  • Understand your inventory – Are tires on consignment, or do we stock them? Is paint for the body shop on consignment? How often are the parts pricing updates run, and is the entry related to these updates posted? These are all questions that help to gain a deeper understanding of how the dealership’s parts inventory functions.

There is no absolute right answer on how to best manage your parts inventory, but knowing where to look when problems come up certainly helps.

Michael B. Mulhearn - CPA, Partner Michael B. Mulhearn, CPA, Partner
T (215) 546 2140
mmulhearn@withum.com

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To ensure compliance with U.S. Treasury rules, unless expressly stated otherwise, any U.S. tax advice contained in this communication is not intended or written to be used, and cannot be used, by the recipient for the purpose of avoiding penalties that may be imposed under the Internal Revenue Code.

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