Auto Parts Inventory - March 12, 2024
We often hear people refer to physical inventories as simply “inventories”. While there is nothing wrong with this, it is important to note that reconciling your auto parts inventory isn’t just about ensuring you have properly recorded the number of physical parts on your shelves. It is also about ensuring that your books and records are properly balanced throughout the year.
It’s not uncommon for there to be discrepancies between your inventory general ledger (G/L) and sub-ledgers. Human error, while limitable, is unpreventable and can quickly throw your books out of balance.
Accuracy is everything when dealing with your auto parts inventories. It’s one of your largest assets and plays a huge role in your company’s success.
That is why we recommend conducting a monthly reconciliation of each parts inventory account.
While we do not recommend adjusting any inventories that you do not physically count, we are in favor of adjusting accounts such as tires and GOG, as long as you verify the correct counts and do a proper physical on them. Most dealerships reconcile their accounts at fiscal year end, checking them monthly lets you focus on a specific time period, allowing you to pinpoint any issues to that time period.
To conduct a monthly reconciliation, you will assume that your physical counts are correct and compare only your ledgers and the reconciling documents, such as parts received and not billed, parts billed and not received, pending credits, open repair orders and counter tickets, etc.
If a discrepancy exists between your G/L and sub-ledgers, you will want to proceed with analyzing your accounts to determine the sources of the differences.
There are a variety of errors that can occur but the most common are:
Once you have identified the source of the discrepancy, it is time to adjust your records.
Depending on the type of error and where it occurred, you will want to adjust your sub-ledgers and general ledger, accordingly. Once the adjustments have been made, verify that your accounts are now balanced.
While this process can be time consuming, it is incredibly beneficial to your dealership. Not only does it help minimize preventable errors, which means less time will be spent analyzing and correcting your books, it can also be an effective tool for determining whether your employees are following accounting best practices and will ensure they are not taking short cuts. It will also help you determine whether or not your administrative staff are properly equipped and trained to be managing your books.
Whether or not your dealership or dealership group requires you as a Parts Manager to perform a monthly reconciliation or not, we would highly recommend it. Why would any Parts Manager go into a physical inventory not knowing where their inventory dollars are in relation to the G/L?
When delegating the monthly reconciliation, you want to select someone who is knowledgeable and can complete an accurate reconciliation in a timely manner, most often the Parts Department Manager.
If performed incorrectly, your reconciliation can become burdensome, especially if you do not realize the reconciliations have been mismanaged until a much later date.
Hiring a third party to conduct your monthly reconciliations is also a good idea. Not only will it minimize the disruptions created within your administrative department, an unbiased reconciler offers you full transparency with regards to the management of your records, minimizing risks associated with employees who lack skills or time to do so.
Finally, the most crucial item in any reconciliation or physical inventory is the cutoff. Make sure you and your office are on the same page in regards to posting items to the G/L.
At Pro Count West, we have the knowledge and experience to efficiently reconcile your books and quickly identify the sources of your discrepancies. If you would like to have us perform a reconciliation of your inventory accounts, contact us today!
