Accounting treatment of long-term contracts with the progress method


The method of advancement can only be used in certain cases and especially when precise conditions are met. The company must:
Be able to assess assets and work in progress at the end of the accounting period ( preferably, it should carry out a permanent inventory);
Be able to prepare forecasting accounting documents (it is advisable, in this respect, to keep an analytical accounting in order to correctly relate its expenses to the contracts concerned).
Three cases are distinguished and will be presented below. They depend in particular on the ability of the company to reliably or not estimate the result at the end of its contracts (its forecast margin). This condition is assumed to be met when the enterprise:
Can clearly identify the total amount of contract revenue ,
Can clearly identify the total cost of the contract
And that it has management tools to calculate and adjust the percentage of progress of each contract.
Accounting treatment of the method at the progress for the beneficiary contracts
This is the case where the forecast margin can be estimated reliably and results in a profit . The following accounting treatments apply:
Throughout the accounting period
All expenses incurred in performing the contract are accounted for in the normal manner. Revenue may be invoiced (or not) in the form of advance payments.
At the end of the accounting period
The charges relate to the next financial year are offset by the recognition of inventories , work in progress or in the recognition of prepaid expenses . Those relating to the current financial year are not neutralized and are left as such in the accounts.

Comments

Post a Comment

Popular posts from this blog

The job of chief accountant

Image
For best accountancy training Best school of accountancy In Lahore . The chief accountant profession uses a knowledge panel that is more or less extensive depending on the size of the company in which he works. Its primary mission is generally to supervise the accounting team. It ensures compliance with and proper application of accounting and tax rules. It may, however, be assigned additional tasks such as personnel administration, for example. Here is a sheet presenting the profession of chief accounting officer and answering the questions: what are the diplomas necessary to carry out the profession of chief accountant? What are the missions he can perform? What is the average salary for an accounting chief? What are the prospects for career development? The profession of chief accountant What qualifications are required to practice as a chief accountant? Traditionally, the degree giving access to faster the chief accountant profession is the higher degree of Accounting and...
Keep reading

Long-term contracts: definition and accounting

Image
The long-term contracts represent a particular type of contract. For best accountancy training Best school of accountancy In Lahore . As such, they benefit from a special accounting treatment. Generally characterized by the deployment of a single project over a long period and with a certain complexity, long-term contracts can be managed according to two methods. Compta-Facile presents a fact sheet devoted exclusively to the definition of a long-term contract and its management in accounting. Long-term contract The General Accounting Plan ( PCG ) provides a long-term contract definition . This is a contract that: Generally lasts quite long (it extends over at least 2 years accounting) It concerns a single project of construction, realization or participation as a subcontractor to the realization of a property or a service that is often complex, that is to say a good or a service (or a set of Goods or services), And whose design, technology, function or end-use relate to t...
Keep reading