Bookkeeping for Auto Repair Shops: Parts Inventory and Labor

What auto repair shop books need to track

An auto repair job is not one line in your books. It is a mix of parts from the shelf, parts ordered for the job, and the labor hours your tech spent on the car. All of that gets spent before the customer pays the invoice.

Your books need to track all of it by job. When you do, you can see which jobs paid and which ones cost more than they brought in. When you do not, you get one big pile of parts and one big pile of labor, and no way to tell which job was the good one.

A repair job uses parts from the shelf, parts ordered from a supplier, and labor from a tech. Some jobs are small, like an oil change. Some are big, like an engine swap. Each one needs its own lines in the books so the profit is real.

Here is what a clean job looks like.

When each line ties to the job, your profit per job is real. When the lines sit in one account, you can not tell which job made money.

How parts show up in your books

Parts are the biggest cost on most repair jobs. Some parts come from the shelf. Some get ordered from a supplier for one job. Some get bought in bulk to keep on hand. Each one shows up in your books a different way.

The clean way is to book each part to the job it was used for. The brake pads go to job one. The rotor goes to job one. The oil filter goes to job one. When the job is done, you can see what it cost in parts.

The messy way is to book all parts to one parts account. Now job one looks cheap, job two looks cheap, and the real cost sits where no one can find it. You can not quote the next job right because you do not know what the last one cost.

Here is a simple way to keep parts straight.

• **Book each part to the job: ** the parts invoice shows the job or the repair order number.
• - **Split parts out by type: ** brakes, filters and fluids are separate costs, not one lump.
• - **Tag each line with the job number: ** so the total for the job is real at month end.
• - **Reconcile the supplier statement to the bank: ** what you paid should match what cleared.
• - **Add up the parts cost per job at month end: ** that total feeds your profit per job.

When parts sit by job, your profit per job is real. When they sit in one pile, you are guessing.

How to track parts inventory

Parts inventory is the hardest part of an auto repair shop to keep clean. You buy parts in bulk to save money. You pull parts from the shelf as you need them. If the shelf count does not match the books, the inventory is off, and your profit is wrong.

The clean way is to count the shelf on a schedule. You count one section at a time. You compare the count to the books. You adjust the difference. When you do this every month, the inventory stays close to right.

The messy way is to never count the shelf. Parts walk out the door. Parts get used on a job and never get billed. Parts go bad on the shelf long after they went out of date. The books still show them as an asset, but the shelf is empty. Your profit looks higher than it is because the cost of the lost and spoiled parts never hit the books.

Here is what to keep straight.

• **Count one section of the shelf each month: ** brakes one month, filters the next, and so on.
• - **Adjust the books to the count: ** the difference is a cost or a correction.
• - **Write off parts that went bad: ** old fluid and old filters still on the books make profit look too high.
• - **Reconcile the parts supplier statement to the bank: ** what you paid should match what cleared.

When the shelf count matches the books, your parts cost is real. When it does not, your profit is a guess.

How labor shows up in your books

Labor is the other big cost on a repair job. Your tech spends hours on the car. Some of that time is billed to the customer. Some is not. If the labor all goes to one labor account, you can not tell which jobs were efficient and which ones took too long.

The clean way is to book labor to the job it was spent on. The tech hours go to job one. The flat rate hours go to job one. When the job is done, you can see what it cost in labor.

The messy way is to book all labor to one labor account. Now a job that took two hours looks the same as a job that took six. You can not tell which tech is fast and which one is slow. You can not price the next job right because you do not know what the last one cost in time.

Here is a simple way to keep labor straight.

• **Book tech hours to the job: ** the repair order shows the job and the hours.
• - **Track billed hours and actual hours: ** the gap tells you how efficient the job was.
• - **Tag each line with the job number: ** so the labor total for the job is real at month end.
• - **Reconcile the payroll to the bank: ** what you paid your techs should match what cleared.

When labor sits by job, your profit per job is real. When it sits in one account, you are guessing.

How to see profit per job

Profit per job is the whole reason to track parts and labor by job. You take what you charged for the job. You take out the parts for that job. You take out the labor for that job. You take out the shop supplies for that job. What is left is what that job earned.

You do not need to get this exact to the penny every time. You need it the same way every month. When you look at a list of jobs and what each one earned, the pattern shows up. Some jobs pay well. Some pay just a little. Some cost you money.

The jobs that pay well are the ones you want more of. The jobs that cost you money tell you something about your prices or your estimates. Maybe the job took longer than you quoted. Maybe the parts cost more than you planned. Maybe the return visit took a second trip and ate the profit.

Here is a simple check you can run every month.

• **Add up the price charged for each job: ** what the customer paid.
• - **Add up the parts for each job: ** what it cost in parts from the shelf and the supplier.
• - **Add up the labor for each job: ** what it cost in tech hours.
• - **Add up the shop supplies for each job: ** fluid, rags and shop stock billed to the job.
• - **Subtract the costs from the price: ** what is left is the profit on that job.

When you see it this way, the jobs that earn and the jobs that drain stand out. That is the whole point of job costing in an auto repair shop.

A situation we clean up

The parts that never got counted

An auto repair shop keeps a busy shelf of filters, brake pads and fluid. Nobody counts the shelf. Parts get pulled and billed to jobs, but some get pulled and never billed. Old filters sit on the shelf long after they went out of date. The books still show the full stock as an asset. At month end, the profit looks higher than it should because the cost of the lost and spoiled parts never hit the books.

Here is how we handle it. We set up a count schedule for one section at a time. We compare the shelf count to the books and adjust the difference. We write off the old parts that went bad. We tie each parts purchase to the bank. When we are done, the parts cost is real and the profit is honest. We set up a simple monthly count so the shelf and the books stay in line from then on.

How we do it

We do monthly bookkeeping and payroll. We work in QuickBooks Online and Xero, and we are QuickBooks Online Accountants, called QBOA. Each client gets one dedicated bookkeeper who learns your business.

We categorize and reconcile in the first week. We send you one list of questions on day 8. We close your books by day 10 and send a profit and loss statement, a balance sheet, and a cash summary. We use read only access, and we never ask for your bank password.

We serve small businesses in Rancho Cucamonga, Ontario, Fontana, San Bernardino, and across the Inland Empire and the country. There is no long contract. It is month to month, with 30 days notice to stop. You can read more about how we work on our bookkeeping service page.

Mistakes we fix

• Parts in one parts account with no job tag
• Labor in one labor account with no job split
• Parts inventory that never gets counted
• Parts that went bad but still sit on the books
• Shop supplies billed to overhead instead of the job
• Supplier statements never reconciled to the bank
• Jobs with no cost list, so profit is a guess

What we do

We do two things: monthly bookkeeping and payroll. For bookkeeping, we categorize and reconcile in the first week, send one list of questions on day 8, and close the books by day 10. You get a profit and loss report, a balance sheet, and a cash summary. We start with a free 20 minute call and reply with a fixed quote in one business day.

Common questions

Do I need to track parts by job? Yes. Parts are the biggest cost on most repair jobs. When you tie each part to the job, your profit per job is real and your next quote is built on the right number.

How do I count parts inventory? Pick one section of the shelf each month. Count it, compare it to the books, and adjust the difference. Write off parts that went bad. When the count matches the books, your parts cost is real.

Do I need to track labor by job too? Yes. Labor is the other big cost. Book tech hours to the job and track billed hours next to actual hours. The gap shows you which jobs were efficient.

Do you do payroll for my techs? Yes. Payroll is one of our two services, along with monthly bookkeeping.