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A contract is a big job requiring considerable length of time to complete and comprising activities to be done outside the factory promises, viz. construction of a dam or school building, laying down railway lines, etc. Since each contract involves considerable resources both in terms of men and materials, it is necessary to devise an appropriate accounting system to ascertain the cost and profit made on each contract separately.

Profit on incomplete contracts: At the end of an accounting period it may be found that certain contract have been completed while others are still in process and will be completed in the coming years. The total profits made on completed contract say be safely taken to the credit of the profit and loss account. But the same cannot be done in case of incomplete contracts. These contracts are still in process, and there are possibilities of profits being turned into to losses on account of heavy rise in prices of materials and labor and losses on account of other unforeseen contingencies. At the same time it does not also seem desire able to consider the profits only on completed contracts and ignore completely incomplete ones because this may result in heavy fluctuations in the figure of profit from year to year. A year in which a large number of contracts have been completed will show an abnormal high figure for profit while reserve may be the case in the year in which a large number of contracts remain incomplete. Therefore, profits on incomplete contracts should be considered, of course, after providing adequate sums for meeting unknown contingencies.

There are no hard and fast rules for the calculation of the figures for profit to be taken to the credit of profit and loss account. However, the following rules may be followed:

(a) Profit should be considered in respect of work certified only, work uncertified should always be valued at cost.

(b) No profit should be taken into consideration if the amount of work certified is less than 1/4 of the contract price because in such cases it is not possible to foresee the future clearly.

(c) If the amount of work certified is 1/4 or more but less than1/2 of the contract price, 1/3 of the profit disclosed, as reduced but the percentage of cash received from the contractee, should be taken to the profit and loss account. The balance should be allowed to remain as a reserve.

(d) If the amount of work certified is very much near completion, if possible the total cost of completing the contract should be estimated The estimated total profit on the contract then can be calculated by deducting the total estimated cost from the contract price. The profit and loss should be credited with that proportion of total estimated profit on cash basis, which the work certified bears to the total contract price.

(e) The whole of loss, if any, should be transferred to the profit and loss account.

Cost Plus Contracts: In certain contracts the contractee agrees to pay to the contractor the cost price (usually prime cost) of the work done on the contract plus an agreed percentage thereof by way of overhead expenses and profit. Such contracts are known as cost-plus contracts. The system of cost plus contract costing is employed in cases where it is very difficult for the contractor to quote the contract price because there has been no precedent which he may take as basis. It is also employed where the work to be done is not fixed at the time of placing order for the contract. The method is generally used where government happens to be the contractee. The method suffers from the following disadvantages:

There is no incentive to the contractor to eliminate waste and economies the cost of completing the contract. On the other hand, he is tempted to increase the cost because greater the cost, the greater will be his share of profit. In case of this system the amount of overheads recovered and profit made depends upon the value of materials used, which is subject to considerable price fluctuations. The agreed fixed percentage may, therefore, prove to be either too excessive or too low for covering overheads and profit.

Escalation Clause: Escalation clause is usually provided in the contract as a safeguard against any likely changes in the prices of utilization of material and labor. The clause provides that in case prices of items of raw materials, labor, etc. specified in the contract, change during the execution of the contract, beyond a specified limit over the price prevailing at the time of signing the agreement, the contract price will be suitably adjusted. The term of the contract specify the procedure for calculating such adjustment in order to avoid all future disputes. Thus, such a clause safeguards the interests of both the contractor and contractee in case of fluctuations in the price of materials and labor, etc.

Work in Progress: At the end of the accounting period a contract may still be in progress. The term work in progress refers to the work done so for in respect of the contract, which is still incomplete. It consists of the following:

(1) Working Certified: It refers to the work approved by the contractee. In case of contracts it is the useful practice for the contractor to get the work approved from time to time from the contractee. This is helpful to the contractor in two ways; first in case the contractee finds the work not up to specifications, he may ask the contractor to take corrective actions in time. Second, in contract accounts it is useful practice to have a system of progress payments, i.e., the contractee agrees to pay a certain percentage of the work certified (say, 80 or 90 percent). This is advantageous to the contractor since he gets immediate liquid funds.

(2) Work Uncertified: It refers to the work which has been done by the contractor but not so far approved by the contractee.

Work certified generally includes some profit element also while work uncertified is always valued at cost to the contractor.

Sub Contracts: The contractor may entrust some portion of the work to be done under the contract to a sub-contractor. Usually work of a specialized nature, i.e., steel work, special flooring, etc., is done by sub-contractors, who are responsible to the main contractor. The cost of such sub-contracts is a direct charge against the contract for which the work has been done.

Rashid Javed is an Asian author. He also writes about contribution margin and Operating Leverage.

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Are you intending to pursue a career in Finance? Then investing in an accounting certification will be one of the smartest moves you will ever make.

Why? If you want to learn golf, do you ask your twenty-four handicapper neighbour or do you run to your locally qualified golf pro? When you buy a house do you get your mate to complete the legal forms or do you find a qualified lawyer who’s been trained properly in real estate conveyancing?

It’s the exact same with Accountants. Yes, there are people out there who can do financial bookkeeping, know the difference between a debit and a credit and can complete a tax return. But who trained them? How do they keep up with the latest laws and accounting standards? What happens if they make mistakes?

So, let us be clear. Potential clients who need accounting services seek out certified accountants.

And they are willing to pay for your expertise.

In no particular order – since they are all important – here are some of the key reasons why potential clients and employers recognise the importance of an accounting certification:

Rigorous Training – most accounting certifications require at least three years of supervised on-the-job training as well as completing exams. They are not easy and nor should they be. Qualified accountants are in well paid jobs and are trusted advisors.

Ongoing Education – once you are qualified, it doesn’t end there. It is just starting. Accountants have to keep on learning and training to make sure they keep up to date with all the changes to company regulations and accounting standards. It’s the key way to protect clients from negligent and unprofessional services

Big Brother Watches – the best accounting associations (Certified Practising Accountants, Chartered Accountants, CIMA) ensure that their members continue to be up to standard,. That means every accountant has to report back to their institute/association on a regular basis and prove that they have really have undertaken ongoing education.

Disciplinary Action – if you’re unprofessional and upset a client whether through negligence or fraud then guess what? The client can (and usually does) complain to your accounting association. And you could be in serious trouble that results in losing your certification. Clients like this fact – they know you are highly motivated to behave ethically and in their interests.

So, there you have it – four reasons why qualified accountants are held in high regard.

If you want to find out more about obtaining a accounting certification then head over to http://www.accounting-careers-guide.com for the latest information on pursuing an accounting career.

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Outsourcing accounting services is very famous and acceptable practice. As a business owner, you know that one of the most important aspects of running a successful business is managing your accounting records well. All successful business owners understand the significance of a proper accounting system and that’s why they ensure to employ the most efficient accounting team in their organization. Taking the help of accounting outsourcing services from firms that have a strong accounting background to support the financial issues of your firm is indeed a great thing to do.

The process of accounting outsourcing is very simple and it can save your lots of time. Here in India, there are many accounting outsourcing companies that provides accounting outsourcing services to various businesses. The size and the nature of the business do not matter to the organization from whom you would be taking the help for your accountancy department, but you must be careful while choosing a particular firm. Since there are many firms in the market, you need to be careful and selective while banking upon a particular firm. This is mainly because the nature and the kind of each business vary from the other. Therefore, it is important to hire the services of a firm who understands the nature of your business and whose people can take your business to the right place.

Outsourcing accounting services would range from accounting reconciliation, accounts receivable and payable accounting, payroll administration, inventory reconciliation, budgeting. The company would usually hire another company to do some or all of these things. By doing so, it gives the responsibility of measuring, communicating and interpreting the company’s finances to another company. This has proven to be cost effective to most companies. In effect, they will be hiring fewer employees and they would not have to maintain a lot of office equipment and supplies. They also acquire the expertise the company offering the outsourcing accounting services.

However, before getting associated with any accounting outsourcing firm, you have to do a recent market research. For this purpose, you can use the medium of internet, where all leading outsourcing firms are available with their websites. These websites display each and every detail about their firm and work mechanism. Secondly, you can also refer to the good business consultancies that are actively associated with all competent and reliable vendors. This kind of research will allow you to come up with an intelligent choice, so that you can avoid all problematic issues of misuse of information or identity threat.

Our Accounting firm is a leading accounting services provider’s service. Our Accounting Firms believe in a new set of words that define business success – speed, expertise, flexibility and innovation. To know more and to use the services visit http://www.hitechaccountingservices.com. To know more about outsourcing accounting services at you may contact us at info@hitechaccountingservices.com.

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