For dealerships, the choice of accounting method is a strategic decision that impacts tax liability and the ability to secure bank financing. Most dealerships must navigate between the Accrual Method (required for inventory and large-scale operations) and the Cash Method (simpler, but often restricted). Primary Accounting Methods Accrual Basis Accounting :
: Dealers may owe taxes on profits they haven't actually collected in cash yet. Cash Basis Accounting :
: Generally limited to dealerships with average annual gross receipts under $25 million (indexed for inflation, currently closer to $26–30 million). buy here pay here accounting method
: Income is recorded only when actual payments are received from the customer.
: Income is recorded when the deal is finalized, even if the cash hasn't been received yet. For dealerships, the choice of accounting method is
: While simpler and offering a clear view of current cash on hand, it can mask long-term financial health and often fails to meet bank requirements for financial statements. Strategic Dealership Structures
: This is the standard required by Generally Accepted Accounting Principles (GAAP) and is typically demanded by lenders, auditors, and investors. Cash Basis Accounting : : Generally limited to
To manage the tax burden of accrual accounting, many BHPH operators use a : Money matters: 3 major accounting changes to watch