Reserve for Parts Purchase Discount – Ford Online Accounting Manual

Assets

RESERVE FOR PARTS PURCHASE DISCOUNT		ASSET ACCOUNT
		1431

Amounts received from Ford Motor Company on certain parts for Purchase Discount.

			Jrnl.	Dr.	Cr.

Purchase of parts subject to discounts			P
	Parts Inventory—total value of parts on invoice			1400
		Reserve for Parts Purchase Discount			1431
		Accounts Payable			2100

Transfer of Reserve for Parts Purchase Discount to Income Accounts			SE
	Reserve for Parts Purchase Discount			1431
		Wholesale Purchase Discount			6410
		Counter Retail Parts Purchase Discount			6421
		Shop Purchase Discount			6450

The balance in this account should be adjusted monthly. The amount retained in reserve should be sufficient to offset the value of parts subject to discount in inventory.
A periodic check should be made of the inventory to ascertain the mix of parts subject to discount. If there is an increase or a decrease, the balance of the Reserve Account should be adjusted accordingly.
The total amount of discounts received each month on the individual invoices should be checked to the memo total shown on the Parts Statement from Ford Motor Company.
The amount transferred to income should be split between Wholesale Purchase Discount (America 6410 /Canada 6410), Counter Retail Purchase Discount (America 6421/Canada 6421) and Shop Purchase Discount (America 6450/Canada 6450) in the ratio of sales of parts subject to discount in the three areas.