October 30, 2016 admin

Accounts Payable—Trade

Liabilities and Net Worth

ACCOUNTS PAYABLE—TRADE LIABILITY ACCOUNT
2100

ACCOUNT EXPLANATION
Amounts due trade creditors for merchandise, services, and equipment purchased on open account.

Ford Motor Company Extended Service Plan registration fee.

Parts Inventory Protection Plan and small order handling charge.
TRANSACTIONS
  Jrnl. Dr. Cr.
  Purchase of parts on open account P
    Inventory—Parts (Ford & Other) 1400-
1410
      Accounts Payable—Trade 2100
             
  Payment of Ford Motor Company parts statement CD
    Accounts Payable—Trade 2100
      Cash in Bank—General 1001
             
  Incentives credited to the daily rental billing P
    Accounts Payable—Trade 2100
      Rental Vehicles 1650
             
  Registration Fees billed to dealer on the warranty and policy settlement statement and charged to the dealership parts account P
    Customer Service Contracts 2315
      Accounts Payable—Trade (Ford) 2100
           
  Reimbursement by Ford of the Extended Service Plan claim on the warranty and policy statement P  
    Accounts Payable—Trade (Ford)   2100
      Ford Receivable—Extended Service Plan     1185
           
  Credit for parts returned credited to Ford Parts Statement under Parts Inventory Protection Plan P  
    Accounts Payable—Trade   2100
      Ford Recievable—Other     1200
             
  Unit down and critical orders P    
    Inventory—Parts (Ford & Others)    1400-
1410		  
    Parts Return and Handling Charges   6580  
      Accounts Payable—Trade     2100
COMMENTS
  • Subsidiary records should support this account.
  • At month end, a listing should be made of accounts payable and the total reconciled with the balance in this account. An adding machine tape of open items in the purchase journal may serve as this listing.
  • Debit balances in accounts payable should be investigated.
  • Where rental activity is part of dealership operations, vehicles removed from rental service should be transferred to used vehicle inventory at wholesale value. The difference between wholesale and book value is recorded in Account 5271 or 5272 (See Adjustments to Income).
  • Purchase orders authorized by appropriate management should be issued for all purchases. When vendors’ invoices are received, they should be compared with purchase orders for prices, terms, etc., before payment is authorized.
  • It is important for accounting accuracy that the liability for materials and services be recorded in the month in which the dealership becomes liable for payment.