Here is where the fun (or hassle) begins. After the payroll and repair order activity is posted, the scheduled account must be reconciled. Review each repair order number that doesn’t equal zero.
If the repair order number is a debit balance (positive), the amount of payroll charged to the control number is more than what cleared when the repair order was closed. One reason is that you paid the technician more than the cost charged to the repair order. This could be caused by using the wrong labor rate for the technician in the service setups, charging the wrong amount of flat rate hours to the repair order or not allowing for incentive pay paid for realizing certain hourly goals.
If the repair order number is a credit balance (negative), the repair order had more cost than what was paid to the technician in payroll. Again this could also be caused by using the wrong labor rate for the technician in the service setups, charging the wrong amount of flat rate hours to the repair order or not allowing for incentive pay paid for realizing certain hourly goals.
Each difference should be reviewed for an explanation. We have found technicians being overpaid and underpaid when we review the differences. If you are paying technicians incentive pay for achieving certain hourly goals, you may need to change the service setups to be an average of what each individual technician makes per hour. The differences should then be minor.
Balance Forward Work in Process Accounts. You will need to have the service manager furnish you with a detailed outstanding repair order list showing the repair order number and the amount of labor hours multiplied by the technician’s hourly pay rate to arrive at what the total work in process balance should be at month end. You will need to adjust the general ledger balance to equal the detailed balance from the service manager.
In most cases, you will not be able to use a standard report from your service software. This is because the service advisors and managers do not enter all of the technician’s time into the software until the job is completed or at least until the operation code line is completed. The only way to rely on the standard reports is to have all the outstanding time entered at month end before running the report.
If you have large adjustments at month end and don’t have work in process scheduled by repair order number, you may want to consider scheduling the account to force out why you have large adjustments. Other reasons for large adjustments could be you are charging vacation and holiday pay to work in process. These amounts should be charged to absentee compensation instead, as they will never clear in the account from a repair order.
Sublet Repair Inventory
Sublet repairs are repairs completed by an outside vendor and included on a repair order. This account is normally scheduled by repair order number.
The account is normally debited for the charge from the vendor. The account is credited by the repair order when it is closed to accounting. If you end up with a debit balance (positive) after the repair order has cleared, the vendor has charged you more than what was charged to the repair order. If you have a credit balance (negative), the repair order has a larger amount for the repair than what was paid to the vendor.
We normally see quite a few credit balances in sublet inventory schedules. This is because the repair order is closed before you receive the vendor’s invoice. This is okay as long as not much time as expired after closing the repair order. If some time has expired, then someone is not entering the accounts payable bills timely (or not receiving them timely from either the service department or the vendor).
Gas, Oil, Grease and Tire Inventories
These products are normally charged to repair orders and also parts tickets. This account is normally debited for the cost of the purchase of these products. The account is credited as the repair order and parts tickets are closed.
We recommend these products are actually entered as part numbers and tracked as any other part would be. Without doing this, you have no physical record of how much you should have left in inventory at any time. If tracked on the parts pad as regular items, a physical inventory should still be completed on a regular basis and compared to the system tracked quantities on hand. Any differences in actual physical versus parts pad quantities should be investigated.
I hope this has helped you understand how these inventory accounts work. They normally have small balances on your balance sheet, but your entire service department sales activity flow through these accounts. They are just as important as your new and used vehicle and parts inventory accounts. By paying attention to the adjustments in these accounts, you can find and pinpoint problems in your service and parts departments.
Vol 5, Issue 4