I was at lunch last week with an automotive banker and we were discussing various issues relating to the automotive industry and within dealerships. When the issue regarding Prepaids, or a prepaid account, came up, the banker said, “We just consider it an expense.”
Unfortunately, the details related to Prepaids (and Accruals) still seem to be a mystery to some dealerships. Our firm continues to find many balances in Prepaid (and Accrual) accounts during our review (interim and year-end) that the owner, general manager, controller or business manager were (1) not aware of or (2) that should have been expensed, re-classed, etc.
We see, last minute general manager incentive adjustments, un-capitalized fixed assets, small claims receivables, old workers compensation insurance audit balances, incorrect property and income tax balances, etc., etc.
The problem seems to be these accounts are put on the “low priority list” and the accounts are not properly scheduled, monitored or adjusted on a timely basis.
We recommend as a “Best Practice” that Prepaids (as well as Accruals) be scheduled and reviewed monthly prior to closing. It is recommended that each prepaid account (as well as each accrual) be set-up as a computer schedule, if not, at least on an excel spreadsheet. The important issue is to monitor the accounts on a timely basis.
If you have any concerns or questions, please contact LSL CPA’s at 714-672-0022.