Wages accrued or outstanding at the end of the accounting period should appear on the debit side of the contract account. If a worker (generally the supervisory staff) is engaged at two or more contracts, his total wages may be apportioned to different contracts based on the time devoted to each one (or on some other equitable basis). Such wages are to be charged to the particular contract directly. 5.Įvery worker who is engaged at the site of a particular contract, irrespective of the nature of the work they perform, is treated as a direct worker, and they receive their wages as direct wages. Materials in hand at the end of the accounting period were valued at $10,000.īased on the above information, show the treatment of the materials in Contract Account No. Materials worth $1,000 were transferred to Contract No. Materials worth $25,000 were received from Contract No. Materials costing $5,000 were sold for $4,800. Materials valued at $3,000 were returned to stores, while materials costing $2,000 were stolen and those costing $500 were destroyed by fire. He purchased materials for the contract at a cost of $80,000. 5 for the construction of a cinema building. The following example shows how different material items should be treated in the contract account. If so, then the contract receiving the materials is debited and the contract sending the materials is credited. Sometimes, materials are transferred from one contract to another contract. The values of the material in hand at the end of the accounting period will appear on the credit side of the contract account. Materials that are lost, stolen, or destroyed by accident (e.g., in a fire) will be charged to the profit and loss account by way of abnormal loss. Materials returned to suppliers and stores will appear on the credit side.Īmounts received from the sale of surplus materials will be credited to the contract account, while any profit or loss arising from them is to be transferred to the profit and loss account by way of abnormal items. The cost of materials purchased directly or issued from stores will appear on the debit side of the contract account. This section provides an overview of the treatment of the various items that are included in the contract account. Treatment of Specific Items in a Contract Account Example of Contract AccountĪn example of a contract account is given below. The other items to be shown on the credit side of the contract account are contract price (in completed contracts) and the work-in-progress, which consists of the value of certified work and the cost of uncertified work (in incomplete contracts). Similarly, profit or loss arising from the sale of the plant or materials should also be transferred to the profit and loss account by way of abnormal items. Materials and plant stolen or destroyed are abnormal losses and should be charged to the profit and loss account.
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