Used Car Bookkeeping

by Dawn Clutterbuck
(Cobourg, Ontario, CA)

Used Car Lot Trade In




Hi,

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?


Dawn Clutterbuck



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Hello Dawn,

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 system.

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.

Comments for Used Car Bookkeeping

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Aug 20, 2010
 HST on Trade-in
by: Bookkeeping-Essentials.com

Hi Dawn,

With regards the HST on the trade-in ... I went hunting and found a CRA reference that may interest you in GST/HST News No. 47 Winter 2002-2003. Page 2 has an article on how to handle the sale of a vehicle when a used vehicle is accepted as a trade-in.

You can find the publication by cutting and pasting this link:

http://www.cra-arc.gc.ca/E/pub/gr/news47/news47-e.pdf


HST is charged on the difference between the car sold and the trade-in (net amount) ... when the customer is not required to charge tax ... in effect you don't have to file your GST/HST Return to get your ITC.


However, if the buyer was a GST/HST registrant, you have to charge the full amount of tax on the sale and pay tax on the trade-in. Both the dealer and the customer claim their ITC when they file their next return.


Hope this helps and that you were able to figure out how to book your inventory entries. If not, post back with more details and I'll see if I can help you out.

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