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smart413
September 14, 2023
Question

Auto Repair Facility - Are comebacks categorized as bad debt or COGs?

  • September 14, 2023
  • 1 reply
  • 0 views

I own a diesel repair shop, we rarely get comebacks (work that must be re-done because of a defective part or other reason). We don't charge the customer but may need to purchase a new part and have a tech remove and replace it... my question is if it's a comeback or 'warranty' work... should it be categorized as bad debt or COGS? Thank you in advance for your feedback.

1 reply

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Dan_Sandler
October 7, 2023

Hi @smart413 ,

 

I wouldn't charge this to COGS or Bad Debt.

To stay clear of charging to COGS, do not put the replacement part in as inventory.

Bad Debt is an account that is specifically made for uncollectable accounts.

It's important to keep Bad Debt as such because it will allow you to setup an accrual for Bad Debt based on the payment history of your customers.

 

I would create a separate account called Warranty expense.  Whether you eat up the cost of the part or whether the manufacturer of the faulty part pays for it, still put it into this expense account.  If the manufacturer subsequently pays for the part, then you can credit Warranty expense when you receive the manufacturer's payment.  By creating the Warranty expense account you will gain insight specifically about how many times you eat up those kinds of costs.  

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