Definition
In floor plan financing, a lender, often a manufacturer's finance arm or a bank, funds a dealer's purchases of new and used vehicles, boats, or equipment. Each unit secures the loan and is repaid on sale, usually within days, with interest accruing while the unit is on the lot. The dealer reports a floor plan notes payable liability, and the units are inventory under ASC 330. Lenders may require periodic curtailment payments on aging units.
Why it matters in an audit or review
Auditors confirm floor plan balances with each lender, reconcile the lender's unit-level statement to the dealer's vehicle inventory by vehicle identification number, and observe the lot. A unit sold but not yet paid for is sold out of trust, which violates the loan agreement and can trigger covenant default and classification questions under ASC 470. Manufacturer credits tied to floor plan interest are evaluated as consideration from a vendor under ASC 705-20.
Example
Illustrative: the lender's statement shows 40 units financed with a balance of $1,200,000. The dealer's inventory ledger lists 38 financed units totaling $1,140,000. The difference is two units and $60,000, which the auditor traces to sales and reviews for sold-out-of-trust status.
Common mistakes
- Offsetting floor plan payable against inventory.
- Not following up on missing units at the lot count.
Sources
- FASB ASC 330, Inventory, and ASC 470, Debt
- FASB ASC 705-20, Cost of Sales and Services, Accounting for Consideration Received from a Vendor
- AICPA, AU-C Section 505, External Confirmations
Definitions paraphrase AICPA and FASB guidance; read the standard itself before relying on a requirement. Example figures are illustrative. This page is guidance, not professional advice. Report an error