CONTENTS:
- Definition of contract account
- Reasons for contract account
- Types of construction contract
- Methods of recognizing revenue under contract account
- Preparation of contract accounts
Meaning of contract account
This is a system of cost accounting used by contractors engaged in construction and building works where it is common for a firm to be engaged in execution of many separate contracts at the same time an which can continue over a long period of time (many years).
Features of contract
- The cost that is direct and is large
- It is site based
- It is undertaken to customer’s special requirement
- It is of relatively of long duration
- There is low indirect cost
Reasons for contract account
- To find the profit on each contract
- To ascertain the level of contract execution
- To take care of such businesses whose nature of work does not conform to a financial year’s calculation of profit.
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