Used Car Dealer Cash Accounting
https://accountingsolutionsltd.com/accounting-articles/used-car-dealer-cash-accounting/ Controlling cash in the used auto financing industry Used car dealer cash accounting can be quite a challenge...
Controlling cash in the used auto financing industry
Because of the cash involved in the Buy Here / Pay Here Industry, these types of businesses have become audit targets at both the Federal and State Level. If you are unable to control the cash coming into your dealership, and account for it properly, then your income will be off. If your income is off, then in the event of an audit, you could be liable for extreme amounts of additional tax, interest, and penalties. If its way off, you could open yourself up to a charge of income tax evasion, which carries with it a potential jail term.
One of the big problems comes down to pay periods. You sell a $4,000 car to someone for $6,000. You take in a $5,000 trade and give them $3,500 for it. You finance the additional $2500 over six months at whatever finance rate that you can get which is payable in equal installments every two weeks when they get a paycheck.
How do you separate principal from interest? How do you handle a month with three paychecks? How do you accrue interest at the end of the year for income tax purposes?
The answers to these questions really come down to years of experience in the car business. Don’t try to do this yourself. As highly qualified and recommended CPA’s and EA’s in the Chicagoland Area, we have developed reasonable answers to these questions which have produced consistent profits for our clients.
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ABOUT THE AUTHOR
Chris Amundson is the President of Accounting Solutions Ltd., a full service public accounting firm of Certified Public Accountants and Enrolled Agents handling the bookkeeping, accounting, tax preparation, and audit representation needs of Businesses, Estates, Trusts, and Upper Income Individuals.