proper accounting for coupons

[topdog]

What is the proper accounting procedure for services sold at coupon prices? Take a regularly priced at $30.00, $10.00 is labor and $7.00 is parts and oil is $13.00. A cooupon is put out for the same oil change to be done for $20.00, where should the discounted $10.00 go in accounting? Should it go directly against the labor and/or parts profit or should it go to an advertising account since that is the real reason we run coupons? Advise would be appreciated.

[nineball]

Goes against gross..anyplace else will just give you a false outlook on the actual health of your department..

[JustBob]

Nineballs statement is correct but not absolute. I made a quick check of the Ford Accounting Manual and it does not appear to address the issue. Perhaps the GM or Chrysler one does but do not have access to them at this time.

Your statement that it is advertising is also correct, and many dealerships would charge it to Advertising Expense and split it between Service and Parts. Of course not all discounts should be treated this way, some are clearly a reduction in the actual sale price. The purpose of the coupons is to get the customer in the door and to up sell them, not too much gross in a $20 oil change these days. Why else would you be doing this? Another example is the first free oil change on a new or used car that many dealers offer. Should the back end take the hit on what the front end gives away? Typically these are charged against the sale or the at least the front end expense and do not reduce gross in the back end. Perhaps more important is tracking the coupons cost over the life of the promotion and seeing what up selling resulted from it. Hopefully your DMS system will provide for tracking discounts if properly configured. While we bean counters can be a PITA one of the purposes of accounting is to provide accurate data that management can base decisions on. Is the promotion effective?
So my advice is reduce gross or expense it just track it.

Of course if you are paid on gross you might want to expense it rather then reduce gross.


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Have a tremendous day
Bob Britting

[texaslp]

The GM acctg manual shows that only free oil changes are charged to advertising. Any discount coupons or specials are reductions to gross. If you charge the $10 to advertising, you're falsely inflating your gross profit and effective labor rate.

Others will disagree because they don't want to see their ELR affected, but the truth of the matter is that it IS affected. If you're booking oil changes as quick service it's seperated anyway. You need to see the true picture.

[bterbo1]

If you are a 'public company' it must go against gross profit according to revenue and gross profit recognition accounting rules for public companies. Most other accounting manuals from manufacturer's that address this issue for private cap dealerships, state that it should go against gross profit also. This gives you a true representation of the transaction.

[partsking]

topdog,
I'm glad you posted this topic. I checked our store and found out that this expense is put into advertising expense. However I discovered that it is being put in the advertising expense on the Parts Dept" side only. I'm going to approach the boss about this. Thanks for the heads up topdog! What does everyone think is a equitable way of splitting this between departments?

[Richard]

PartsKing; how about if you find out that parts is paying 100% of the parts side, and service isn't paying anything? They don't even book the labor at all.

[zsmith]

partsking - the fairest way to split it is for parts to pay the discount percentage on the parts only, and service to pay the discount given on the labor, hopefully it's the same percentage on both. Keep in mind, however, that a percentage discount is more painful for the parts dept., since their markup (or gross percentage) is much lower than the sevice markup.

[gmcgrew]

The manager(s) signing off on the coupon should pay for it and percentage's should be set up BEFORE the coupon's are sent. I can't plan my expenses for the month without knowing what is happening.

I would continue to charge it to the same place it has been charged so that when comparing statements they look the same. Also as Justbob stated make sure the results are tracked no matter how it is charged.

Partsking a service coupon being billed entirely to parts is like sales advertising being billed to service. Why in the world should parts have to pay the entire bill when both departments benefit.

[Mike Vogel]

A coupon is a discount to get a sale therefore it should be part of the cost of sale. If you normally sell a brake job at $200 but offer a $20 discount coupon than your sale amount should be $180. Putting coupons or discounts to advertising hides what you are actually making gross profit wise.