As another year has come to a close, the dealership accounting world will start to speak about the dubious 13th month. There aren’t many other industries that utilize a 13th month so let’s break it down for our non-dealership friends.
Dealerships report a dealer financial statement to their respective manufacturers after the end of each month, but in addition to these monthly financial statements, a dealership will potentially report a 13th month. The 13th month is ingrained in the dealership industry as dealership management system (DMS) providers have set up their software to include a 13th month option. Even the IRS has an audit technique guide for auto dealerships that includes multiple references to 13th month journal entries. The nature of how a dealership utilizes a 13th month varies by company, but companies that use a 13th month will usually record year-end items they prefer not to record under normal dealership operations. Some of the more common items that are recorded in a 13th month could include the following:
- “True-up” adjustments for year-end reporting, i.e., final LIFO, depreciation, chargeback reserves, trade discounts, inventory write-downs
- Non-recurring, non-operational, or unusual items i.e., significant insurance claims or refunds, warranty/incentive audit chargebacks, PPP/ERC income
- Year-end items i.e., owner/executive bonuses, deferred compensation, investment gains or losses
There is not a right or wrong answer on whether you should have a 13th month financial statement, but it is good for dealership outsiders to understand what they entail and what to be aware of. In addition, it is critical for those working on valuations, due diligence, and buy-sells for dealerships to inquire about a 13th month to confirm the data provided includes these year-end adjustments. One way to check whether or not a dealership may be using a 13th month is to reconcile the trial balance to the final GAAP financial statement and/or final tax return. If the numbers do not reconcile, you may have 13th month adjustments to account for.
Reach out to a professional at FORVIS or fill out the Contact Us form below to learn more about the benefits of a 13th month.