GL Code	Account Description	Type	Debit	Credit
1200	Accounts Receivable / Contract Receivable	Asset	$37,000
1402	Used Vehicle Inventory – Trade-ins	Asset	$15,000
4501	Vehicle Sales	Revenue		$50,000
2100	Liability Payable – Trade-in Lender	Liability		$2,000

1200 — Accounts Receivable / Contract Receivable	Amount financed or receivable from the client.
1402 — Used Vehicle Inventory – Trade-ins	Value allowed for the trade-in vehicle.
4501 — Vehicle Sales	Revenue generated from the vehicle sale.
2100 — Liability Payable – Lender	Amount owed to the lender of the traded vehicle.

When the dealership pays off the loan balance:

GL Code	Account Description	Type	Debit	Credit
2100	Liability Payable – Trade-in Lender	Liability	$2,000
1001	Bank	Asset		$2,000

Actual value: $20,000
Recorded value: $15,000
Difference: $5,000

GL Code	Account Description	Type	Debit	Credit
1402	Used Vehicle Inventory – Trade-ins	Asset	$5,000
4502	Inventory Revaluation Gain	Revenue		$5,000

GL Code	Account	Type
1001	Bank	Asset
1200	Accounts Receivable / Financing	Asset
1402	Used Vehicle Inventory	Asset
2100	Liability Payable – Trade-in Lender	Liability
4501	Vehicle Sales	Revenue
4502	Inventory Revaluation Gain	Revenue

In many accounting and tax jurisdictions:

unrealized gains on inventory are NOT recognized,
inventory remains recorded at:
- cost,
- or the lower of cost and net realizable value.

Therefore, many accountants would prefer the following approach:

Keep the traded vehicle in inventory at $15,000.

Then recognize the actual profit only when the used vehicle is resold.

At the Trade-In

| Used Vehicle Inventory | $15,000 |

No gain is recorded.

Then:

Taxable actual profit: $20,000 – $15,000 = $5,000

Yes:

the gain generally becomes taxable when it is recognized as revenue.

However:

immediately recording an inventory revaluation gain is generally not the preferred tax method.

In the automotive industry, the most common practice is to: