Chapter 6

COST OF SALES

INTRODUCTION

Cost of sales for an auto body business will be the largest category of costs shown on the return. It encompasses at least three major costs categories which are:

1. Purchases

2. Labor

3. Sublet Expenses

It may also include inventory totals for the beginning and ending of the year. Because of the large dollar amount relative to the other expenses, cost of sales warrants special attention.

It should be noted that the following audit procedures are only suggestions and should not be considered as an all-inclusive approach. The examiner should always consider his or her own personal audit techniques gained from experiences which have proven successful in the past.

PURCHASES

The major cost associated with the purchases account

will be for parts used in the replacement or repair

process. These can be purchased new from auto dealers or parts stores, or may be purchased used from auto dismantling businesses. In some cases, entire automobiles may be purchased for the sole purpose of obtaining parts. Depending upon the services provided by the body shop, parts may include items such as panels, doors, bumpers, fenders, hoods, etc. as well as minor engine parts such as water pumps, radiators, etc.

Purchases accounts also include the cost of materials used to restore the vehicle to its original state once the parts have been replaced or repaired. This category includes bondo, primers, thinners, paints, sandpaper, etc. These will usually be purchased from businesses which specialize in automotive paints.

Since the majority of jobs are paid for by insurance

companies, the amount the auto body shop will

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