Used Car Bookkeeping
by Dawn Clutterbuck
(Cobourg, Ontario, CA)
Used Car Lot Trade In
When I am doing an entry for a used car sale with a trade in I debit the bank, credit sales and HST and what is my other debit?
Accounting for a car dealership is not in my area of expertise but here's what I think ...
Your bookkeeping entry has only dealt with the sale of the used car ... not the increase or decrease in your inventory.
Now you need to add the purchase of the trade-in to your inventory account at the cost you "paid" for it ... and remove the car sold from inventory.
You may also have to record HST on the "purchase" of the trade-in ... I'm not sure on this so you'll have to find out ... perhaps look back at older bookkeeping transactions. You want to take the time to figure that out as the input tax credit (ITC) is money that will be returned to you when you submit your GST/HST return to CRA.
The best way to get through these types of transactions is to think about each component of the transaction
What did I buy? (debit) - a used trade-in vehicle ... which will increase my inventory and I may have to account for GST/HST on this part of the transaction
What did I receive? (debit) - some form of cash payment ...
What did I give in return (credit) - sold a used vehicle ... which will reduce my inventory, affect my cost of goods sold (COGS) and attract GST/HST
I'm don't know whether you are using periodic inventory
or a perpetual inventory
You'll have to follow the appropriate link to get the correct bookkeeping entry for your inventory transactions.
For the benefit of other readers, if this vehicle sale transaction is a private sale
, there will be no HST ITC and there is still a provincial tax on the transaction.