Accounting, Payroll & Pension Issues/accounting issues

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Question
I am trying to set up a bookkeeping system for a used car dealer.  I was a bookkeeper 40 years ago for a general motors dealership and I have forgotten how you balance the assets and liabilities to zero out at end of month. Where does the profit go? Where does the draw go? Is equity and net worth two different accounts? We have not ascertained our assets as of this date, because we do not have the value of land, buildings, etc.  My assets look like this, cash in bank 57,447.91, inventory of cars is 25,590.00 for a total of 83,037.91. Liabilities is floor plan 129,010.39, making a negative amount in net worth of (45,972.48).  I have a draw account of 11,941.75, I do not know where it goes, and a profit of 19,750.87 that I do not know where it goes.  Can you help me?

Answer
At the end of the month, or other accounting period, the current period net income or (loss) is closed out into retained earnings.

The balance sheet equation is Assets = Liabilities + Equity. The term "net worth" is often used to describe equity, typically for sole proprietorships. Each transaction when recorded should net to zero resulting in the balance sheet always being in balance.

A draw account is included in the equity section of the balance sheet.

I do not understand what you mean by "liabiliies is floor plan"? That makes no sense to me.

As to your comment about not including assets because you do not have the value of land, buildings, etc., I question that. Assets are normally included on a balance sheet based on cost, not current value. There are, of course, exceptions to that. For example, if one owner contributes cash to a venture and another contributes assets at an agreed upon value. So, how did this entity get started, did someone contribute cash? land? building?

If you use bookkeeping software, Quickbooks, Peachtree, etc., then the software will force you to deal with some of these issues. That is part of the value in using good bookkeeping software.

I expect you will have more questions, if so just ask away, especially if you have only a relative few questions. Howeve, It sounds like you might consider hiring an accountant to prepare the annual income tax return as well as being a person to provide answers to these and other questions you will have.

Let me know if I can provide more assistance.  

Accounting, Payroll & Pension Issues

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Arthur Naman

Expertise

General accounting and bookkeeping questions. Specific questions pertaining to: monthly bookkeeping, preparing financial reports; reconciling accounts.

I cannot answer questions pertaining to pension or retirement planning.

This is not a forum to have homework answered. Please do your own homework.

Experience

30 years' experience doing tax and accounting work

Education/Credentials
MPA from Univ. of Texas at Austin, MBA Golden Gate Univ, San Francisco CA

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