Page 224 - DCOM202_COST_ACCOUNTING_I

Cost Accounting – I

Notes ™ z When materials are specifically purchased for the contract.
Materials a/c Dr.

To Cash or supplier’s a/c
(Note: Usually the materials bought are sent to the store room of the contractor.)
™ z When materials are sent to site by the contractor.
Contract a/c Dr.
To Materials a/c

™ z When any materials are sold at work site.
Cash a/c Dr.
To Contract a/c

™ z When materials are transferred from one contract to another.
Transferee contract a/c Dr.
To Transferor contract a/c
™ z When materials are sent to stores.
Stores control a/c Dr.
To contract

™ z For recording materials remaining at site at the end of the year.
(a) At the end of the current year:
Materials at site a/c Dr.
To Contract a/c
(b) At the beginning of the next year:

Contract a/c Dr.
To Materials on site a/c
™ z For recording accidental loss of materials.
Insurance company a/c Dr. (with the admitted claim)
Profit and loss a/c Dr. (with the residue)

To Contract a/c
™ z When materials are supplied by the contractee, the value of such materials should
not be charged to the contract account. Instead, a separate record for such materials
should be kept because the unused materials will have to be returned back to the
contractee.

(ii) Labour Cost: When several contracts are running at different areas, payroll is normally
sectionalised so as to have separate payroll for every contract. Difficulties in costing may
be encountered when some workers may have to move from one site to another when a
number of small contracts are undertaken.
In such situations, it becomes necessary to provide time sheets from which allocation can
be made. In order to control labour utilisation and prevent fraud in the payment of wages,
surprise visits by head office personnel will necessary. If there is any outstanding wages, it
is also charged to contract account and in balance sheet as a liability, if it is required.

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