Internal expenses of company

Accounting Entries 811 views 5 replies

Dear Sir,

 

I am manging the account of an automobile company. I have a situation

a) where we give free service to the customer on the vehicle sold by our dealer.

b) where we give free service to the customer on the vehicle sold by other dealer.

In situation b) we can claim a labour amount of550 per vehicle (excluding service tax) to the selling dealer.

My question would be, in situation a) I am incurring an internal expense of550 per vehicle serviced at our dealer. So  how do I post this internal expense to my company. I am using Tally.

Replies (5)

Dear Prashant

From the question it seems that you ar the  manufacturer(Ltd Company) of vehicles & you sell the vehicles to the dealers.So dealers shall be classified as Debtors for Goods.

1) You are incurring the expenditure on behalf of the dealer.If you are claiming the expenditure from the dealer then by raising debit note,you can pass the appropriate entry.(Debit to Dealer account & credit to Reimbursement of Service Charges account)

2)If you are not claiming the expenditure from the dealer,then it is purely the business expenditure in the nature of after Sales service.you can Pass the JV for this and treat the expenditure under the group of  Selling & Distribution Expenses

in the case a , it should be treated as selling expenses

Thanks CA Ketan Mahajan and future ca. It is really appreciated. One little correction that our company is not a manufacturer but it is a dealer. I have one another situation. We do carry out certain repeat job free of cost at our workshop to the customers. We issue parts (at cost price) (sayX) and corresponding service labour cost (sayY) without service tax. My question is do I need to consider this as internal expenses and if I want to consider this as internal expenses how do I post it in the Tally. The cost incurred isX + Y.

Hi Prashant..hope u have satisfied with the answer given..The situation will remain same in case of dealer company also..

Regarding another q raised

I want to know the parts u issue free of cosst are internally manufactured parts or u buy the parts from outright from the open market..?

I buy the parts from the company to which I am a dealer. I pay VAT on it while purchasing the parts. 


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