Several times over the past month we have had inquiries on how to purge obsolete inventory. More specifically, how can the dealership parts department sell the parts on an invoice without affecting the gross profit percentages overall?
Typically, when using a parts broker such as Dealermine, you will sell certain parts at fifty cents on the dollar. When making an invoice, some of the DMS Vendors allow a price level (or price code) that will sell below cost. If your DMS Vendor does not have the ability to create such a price level, you have to manually input the sale price at half the cost.
Here is where the problem occurs. When you close the ticket, depending on the sale account that you post it through, whether it be retail or wholesale, you show a loss between cost and sale. This is where running these write off sales can really knock your overall gross profit percentage down. For instance, if you sell $5,000 worth of obsolete inventory and bill it out correctly with $5,000 in cost and $2,500 in sales, you show a $2,500 loss. Throw that into the Sale Account mix for a given month and your gross profit looks terrible.
We suggest creating a separate Sale Account for just write off sales such as the scenario above. By creating a separate Sale Account, it doesn’t mess with existing sale accounts and it gives accounting a very easy way to track these sales and apply any accrual dollars to offset the loss as well. It really helps to keep the numbers in line and keep everything accurate for tracking purposes.