Accounting for construction contracts How to get it

In order to calculate the construction contract business, the enterprise should set up "engineering construction" and "project settlement" accounts.

When contract income and contract expenses are recognized in accordance with the construction contract standards, the "cost of main business" account is debited, the "main business income" account is credited, and the "engineering construction (contract gross profit)" account is debited or credited according to the difference.

When the contract is completed, the balance of the "Engineering Construction" account is hedged against the corresponding "Engineering Settlement" account, and the "Engineering Settlement" account is debited and the "Engineering Construction" account is credited.

Since the commencement and completion dates of construction contracts usually fall in different fiscal years, it becomes a very important issue how to match the contract revenue with the contract costs and allocate them to the various fiscal years in which the project is carried out. The construction contract standards specify how contract revenues and contract cost allocations are to be included in the various accounting years in which the works are carried out.

Accounting treatment of construction contract business.

In order to calculate the construction contract business, the enterprise should set up "engineering construction" and "project settlement" accounts.

1. "Engineering Construction" (shipbuilding and other manufacturing enterprises can also use the "Production Cost" account) to calculate the actual contract cost and contract gross profit incurred by the enterprise. This account should be calculated in detail according to the construction contract, respectively, "contract cost", "indirect expenses" and "contract gross profit", and the debit balance at the end of the period reflects the construction contract cost and contract gross profit that have not yet been completed.

The labor costs, material costs, machinery use costs, and other direct expenses such as the secondary handling costs of materials on the construction site, the use of production tools and appliances, the inspection and test costs, and the depreciation costs of temporary facilities incurred by the enterprise during the contract construction shall be debited to the account of "engineering construction (contract cost)" and credited to the accounts of "employee remuneration payable" and "raw materials"; Indirect expenses such as the remuneration of management personnel of construction and production units, depreciation of fixed assets, property insurance premiums, project warranty fees, sewage charges, etc., shall be debited to the account of "engineering construction (indirect costs)", and credited to the accounts of "accumulated depreciation" and "bank deposit". At the end of the month, when the overhead allocation is included in the relevant contract costs, the Construction (Contract Costs) account is debited and the Construction (Overhead) account is credited.

When contract income and contract expenses are recognized in accordance with the construction contract standards, the "cost of main business" account is debited, the "main business income" account is credited, and the "engineering construction (contract gross profit)" account is debited or credited according to the difference.

When the contract is completed, the balance of the "Engineering Construction" account is hedged against the corresponding "Engineering Settlement" account, and the "Engineering Settlement" account is debited and the "Engineering Construction" account is credited.

2. The "project settlement" account accounts for the cumulative amount of settlement from the buyer according to the construction contract. This account is the allowance account of the "engineering construction" account, which should be accounted for in detail according to the construction contract, and the credit balance at the end of the period reflects the cumulative amount of the settlement of the unfinished construction contract of the enterprise.

When the enterprise settles the project price with the buyer, it debits the "accounts receivable" and other accounts and credits the "project settlement" account according to the amount that should be settled. When the contract is completed, the balance of the "Project Settlement" account is hedged with the corresponding "Engineering Construction" account, and the "Project Settlement" account is debited and the "Engineering Construction" account is credited.

If the estimated total cost of the contract exceeds the total revenue, the estimated loss shall be recognized if the construction contract has not commenced or is in operation. When the construction is not started, the "cost of main business" account will be debited and the "estimated liability" account will be credited according to the difference; During the implementation process, the "Asset Impairment Loss" account is debited and the "Inventory Decline Provision - Contract Estimated Loss Provision" account is credited according to the difference; When the contract is completed, the Estimated Liabilities or Provision for Inventory Decline – Provision for Estimated Losses on Contracts account is debited and the Cost of Sales account is credited.

Main Accounting Treatment of Construction Contracts:

Confirm the actual contract costs incurred.

Borrow: engineering construction - contract cost, credit: raw materials, etc., confirm the settled contract price:

Debit: accounts receivable, credit: project settlement, confirmation of the actual price received:

Debit: Bank Deposits, Credit: Accounts Receivable, Recognition Same as Revenue, Cost, Gross Profit - Percentage of Completion Method:

Debit: Cost of main business, Debit: Engineering Construction - Contract Gross Profit (or credit, indicating loss), Credit:

The main business income, if the estimated total cost of the construction contract exceeds the total contract income, the contract projected loss is formed, the accrual loss provision (for the unfinished part), the amount of the provision = (cost - income) (1 - completion progress), debit: asset impairment loss, credit: inventory decline provision, project completion, hedging project settlement and engineering construction account:

Borrow: Project Settlement, Credit: Engineering Construction - Contract Cost, Credit: Engineering Construction - Contract Gross Profit, Withdrawn Loss Provision to Offset Contract Costs:

Borrow: Provision for inventory decline, Credit: Cost of main business, hedging project construction and project settlement at the end of the period, and the debit balance at the end of the period of project construction, reflecting the cost of the construction contract and the gross profit of the contract that have not yet been completed.

For construction companies, it is often necessary to deal with the issue of construction contracts. When accounting for a construction contract, it generally involves engineering construction subjects and engineering settlement subjects. How should construction contracts be accounted for?

How is the construction contract accounted for?

Confirm the actual contract costs incurred.

Borrow: Engineering construction - contract cost.

Credit: raw materials, etc.

Confirm the settled contract price:

Debit: Accounts receivable.

Credit: Project settlement.

Confirm the actual price received:

Borrow: Bank deposit.

Credit: Accounts receivable.

Recognition of revenue, costs, gross profit (percentage of completion method):

Borrow: Cost of main business.

Gongpai Shancheng Construction - Contract Gross Profit (or Credit, Indicating Loss).

Credit: main business income.

If the estimated total cost of the construction contract exceeds the total revenue of the contract, the projected loss of the contract is formed, and the provision for losses accrued is accrued and (for the part that is not completed).

Amount of provision = (Cost - Revenue) (1 - Progress of Completion).

Borrow: Asset impairment loss.

Credit: Provision for decline in value of inventories.

Completion of the project, hedging project settlement and project construction account:

Borrow: Project settlement.

Credit: Engineering Construction - Contract Cost.

Construction - Contract Gross Profit.

Provision for Losses Withdrawn to Offset Contract Costs:

Borrow: Provision for decline in value of inventories.

Credit: Cost of Principal Operations.

At the end of the period, the construction of the project and the settlement of the project will be hedged, and the debit balance at the end of the construction project will reflect the cost of the construction contract and the gross profit of the contract that have not yet been completed.

Engineering construction is a special account for the accounting of construction and installation enterprises to collect and calculate the cost of the project, and it is the activity of new construction, expansion and reconstruction of the construction project according to the requirements of the construction project design documents. The construction of the project consists of four details: labor costs, material costs, machinery costs, and other direct costs.

What is Project Settlement?

The construction settlement account is an accounting account for the construction contractor. This account accounts for the cumulative amount of settlement made by the enterprise (construction contractor) to the owner according to the construction contract. This account shall be accounted for in detail in accordance with the construction contract.

When the enterprise settles the project price with the owner, it shall debit the account of "accounts receivable" and credit this account according to the amount that should be settled. When the contract is completed, the balance of this account is hedged against the "Engineering Construction" account of the relevant engineering construction contract, and this account is debited and the "Engineering Construction" account is credited.

The credit balance at the end of the period of this account reflects the accumulated amount of the settlement of the unfinished construction contract of the enterprise.

Project settlement is a very important work in project contracting.

The full name is the settlement of the project price, which refers to the settlement of the project contract price between the construction unit and the construction unit according to the contract signed by both parties (including supplementary agreement).

The project settlement is divided into: project regular settlement, project stage settlement, project year-end settlement, and project completion settlement.

1. Contract income includes: initial income stipulated in the contract; Income from contract changes, claims, awards, etc. This part of the income is the income generated in the process of executing the contract due to contract changes, claims, awards, etc., so it cannot be recognized casually, and can only constitute the total income of the contract when the specified conditions are met.

Piecemeal benefits related to the contract, such as proceeds from the disposal of residual materials after the completion of the contract, cannot be recognized as revenue, but should be offset against the cost of the contract.

2. The contract cost includes the direct and indirect expenses incurred from the signing of the contract to the completion of the contract, and the direct expenses related to the execution of the contract, but does not include the management expenses, sales expenses and financial expenses that should be accrued to the current profit or loss. The relevant expenses incurred as a result of the conclusion of the contract shall be directly included in the profit or loss for the current period (e.g. travel expenses, bidding expenses, etc.).

3. If the result of the construction contract can be reliably estimated and confirmed according to the percentage of completion, the formula is as follows:

Contract revenue recognized in the current period = total contract revenue Completion progress - Accumulated revenue recognized in previous accounting periods.

Contract Expenses Recognized in the Current Period = Total Estimated Contract Cost Completion Progress – Accumulated Recognized Expenses in Previous Accounting Periods.

Gross profit recognized in the current period = contract revenue recognized in the current period - contract expenses recognized in the current period.

Among them, the completion progress refers to the cumulative completion progress. The following methods can be used:

The actual measured progress of completion.

The proportion of the contracted workload that has been completed as a proportion of the total projected workload of the contract.

The cumulative actual contract cost as a proportion of the estimated total cost of the contract; The cumulative actual contract costs incurred refer to the direct and indirect costs consumed by the project entities and workloads that form the progress of the completion of the project, excluding the contract costs related to the future activities of the contract (with special attention to the fact that those that have not yet been consumed cannot be included in the costs) and the amounts paid in advance to the subcontractor before the completion of the workload of the subcontracted works (the progress payment of the subcontracted works according to the progress of the subcontracted works shall constitute the cumulative actual contract costs).

First, if the outcome of the construction contract can be reliably estimated, the enterprise should recognize contract revenue and contract expenses at the balance sheet date based on the percentage of completion method.

Second, if the results of the construction contract cannot be reliably estimated, the contract revenue and contract expenses cannot be recognized and measured using the percentage of completion method, but should be accounted for in the following two situations: If the contract cost can be recovered, the contract income shall be recognized according to the actual contract cost that can be recovered, and the contract cost shall be recognized as the contract cost in the period in which it is incurred; If it is impossible to recover the contract cost, it shall be recognized as the contract expense immediately when it is incurred, and the contract income shall not be recognized.

Performance progress in 2019 = 450 1500 * 100% = 30% Recognized revenue = 1800 * 30% = 5.4 million yuan.

Carry-over cost = 1500 * 30% = 4.5 million yuan.

Performance progress in 2020 = 1200 (1200 + 400) * 100% = 75% Recognized revenue = 1800 * 75% - 540 = 8.1 million yuan.

Carry-over cost = 1600 * 75% - 450 = 7.5 million yuan.

Confirmation of contract costs.

If the outcome of the construction contract can be reliably estimated, the enterprise should recognise contract revenue and contract expenses at the balance sheet date in accordance with the percentage of completion method.

The enterprise at the balance sheet date, if the results of the construction contract cannot be reliably estimated:

a. If the contract cost can be recovered, the contract income shall be recognized according to the actual contract cost that can be recovered, and the contract cost shall be recognized as an expense in the current period in which it is incurred;

b. If the contract cost cannot recover the hail, it shall be recognized as an expense immediately when it is sold, and the contract income shall not be recognized.

Main Accounting Treatment of Construction Contracts:

Confirm the actual contract costs incurred.

Borrow: Engineering construction - contract cost.

Credit: raw materials, etc.

Confirm the settled contract price:

Debit: Accounts receivable.

Credit: Project settlement.

Confirm the actual price received:

Borrow: Bank deposit.

Credit: Accounts receivable next to sail payments.

Recognition of revenue, costs, gross profit (percentage of completion method):

Borrow: Cost of main business.

Construction – Contract gross profit (or credit, indicating loss).

Credit: main business income.

If the estimated total cost of the construction contract exceeds the total revenue of the contract, the estimated loss of the contract is formed, and the provision for losses is accrued (for the part that is not completed).

Amount of provision = (Cost - Revenue) (1 - Progress of Completion).

Borrow: Asset impairment loss.

Credit: Provision for decline in value of inventories.

The works are completed, and the hedging is carried out"Project settlement"with"Engineering construction"Account.

Borrow: Project settlement.

Credit: Engineering Construction - Contract Cost.

Contract gross profit. Provision for Losses Withdrawn to Offset Contract Costs:

Borrow: Provision for decline in value of inventories.

Credit: Cost of Principal Operations.

At the end of the period, the construction of the project and the settlement of the project will be hedged, and the debit balance at the end of the construction project will reflect the cost of the construction contract and the gross profit of the contract that have not yet been completed.