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  • Writer's picturePhil Villegas

Mysteries Within the Balance Sheet

By Marilou C. Vroman, CPA, CFE

Mysteries at the Museum – for those who have seen the show, you know everything has a back story. This is not so different from the amounts which reside on your dealership’s balance sheet. When was the last time you had a financial review meeting at your dealership and got a comfort level with your reported prepaid expenses, accounts payable or retained earnings? It’s likely you are thinking, well why on earth would we need to do this when I already pay someone to watch this for me? Let’s put our Pink Panther hats on for a moment.

Automotive retail is highly focused on departmental gross, PVRs, expenses and net income. Most performance targets and pay plans are based upon these items and the ability of personnel with control over these areas to keep them in check and maximize profits for the dealer. While profitability is key, we often find mysteries residing in the balance sheet which tend to linger on the books without being investigated from one month to the next; items which lead to surprise adjustments and losses in the future. These items are often disregarded due to time constraints – the accounting staff just trying to keep up, lack of follow through by management, intent to defer or “smooth” earnings, or potentially adverse impact to compensation.

As we rely upon controllers and outside CPAs to keep our books healthy and accurate, here are a few suggested items to review with accounting on an interim basis to be sure there are no surprises:

  • Retained earnings – Any unusual entries which are operating in nature?

  • Prepaid expenses – Are balances only for items having a future benefit?

  • Accrued liabilities – Any “hidden receivables” (debit balances) hidden here?

  • Work in process – Are there open RO’s for all technician compensation recorded here

  • Intercompany accounts – Do the balances agree with balance recorded by the related party?

  • Receivables – Are any balances potentially uncollectible or unexplained?

  • Inventories – Have all units been recently touched in a physical inventory?

  • Equity – have all recorded distributions/dividends been received by the owner(s)?

This list is not all-encompassing, rather it’s a guideline for dealers to periodically “inspect what you expect” and help prevent financial surprises in the future.You might be surprised by the mysteries you solve in your balance sheet.

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