account with him. While lump-sum contracts differ in their terms from cost-plus contracts, the accounting in this ledger is the same for both.

This form is divided into two sections. One is a memorandum account for recording the amounts of contract and extras and the contractor's estimated profit. The other is the regular account with the owner showing the debits and credits forming the basis of the trial balance.

Memorandum Account

At the time the contract is signed, no entry is made in any account appearing on the trial balances or balance sheets. The same reason exists for not creating an asset for contracts with owners as that given in this chapter for not setting up a liability at the time the contract with a subcontractor is signed.

Upon the signing of a contract, the following information is taken from it and entered in the memorandum account with the owner (Form 22). The name of the owner; the name of the architect; the name of the building or improvement being undertaken; the date construction work is to be completed; the penalty or premium per day; the terms of payment; the basis for placing fire insurance and whether to be purchased by the owner, or by the contractor, or by each for his interest; the amount of any surety bond furnished, together with the name of the company writing it. The office number of the contract is shown. The date of a contract and a description of the character and location of the construction work to be performed are entered in the Date and Description columns.

ENTERING CONTRACT AND PROFIT. The amount of the original contract is entered in the Contract and Extras column. The difference between the amount of the contract and the estimated cost of the work to the contractor is shown in the

Profit column. If the contract with an owner is for $1,000,000 and the contractor's estimated cost $925,000, $1,000,000 I would be entered in the Contract and Extras column and $75,000 in the Profit column (Entries 1 and 2, Form 22).

ADDITIONAL WORK. When an extra order is received from the architect for additional work ordered for the owner, the amount is shown in the Contract and Extras column and the estimated profit on the extra order in the Profit column (Entries 3 and 4, Form 22). The office change number appears in the column marked "Change No."

WORK OMITTED. When an order is received from the architect covering work to be omitted and agreeing upon the reduction of the contract price, the amount of the order is noted in the Allowances column (Entry 5, Form 22), and the change in profit in the Profit column (Entry 6, Form 22).

EXTENSION OF TIME. The date when changes in plans and specifications are ordered may delay the completion of the work beyond the contract date. Extensions of time for completing work are granted, are stated in the order, and entered in the Extension Time column.

Applications for Payment

The contract price is usually divided into allotments for each line of work embraced in the contract, whenever payments are to be made monthly (Form 6, page 26). These allotments are based on the values used in preparing the original bid.

Applications for payment are sent to the architect as the representative of the owner at times indicated in the contract. The amount of the applications is determined by the percentage of work completed in each trade. The sum of the values placed on the completed portions of each trade represents the total

value of work completed at the end of each period. The amount collectible is the result obtained by deducting from the value of work completed, first, the retained percentage, and, second, the total of all previous payments by the owner.

When contracts provide for payment of specified sums, as construction work reaches definitely described stages, the applications are merely for the amounts so stipulated and are sent to the architect when the field work has advanced to the stage required by the contract.

Unit price contracts are those in which individual unit prices are named in the contract as the amount that the owner agrees to pay to the contractor for performing each unit of work of that class. The number of units completed by the contractor is agreed upon by the architect and the contractor as the work progresses. The amount of the applications is determined by the value of the number of units completed, calculated at the contract price.

Regular Account and Accounting Entries

This account contains a record of all applications sent to owners for work done and all payments received from them. A journal entry is prepared crediting the proper construction account and charging the owner's controlling account for the total of the application. The amount chargeable against each owner is posted from the journal to the individual account with him.

If, on March 1, an application were sent to John Jones for $100,000, total value of work done on the Broadway Job, the Broadway Construction account would be credited with $100,000, and the owner's controlling account on the general ledger charged with $100,000. On the owner's contract ledger, John Jones would be debited with the $100,000 posted from the journal (Entry 7, Form 22). If the subsequent application on April 1, showed the total value of work to that

date to be $250,000, the journal entry would be for $150,000 (Entry 8, Form 22).

If the contract provided for 90% monthly payments, the check received the early part of March in settlement of the first application would be for $90,000. This payment would be credited on the cash book to the owner's controlling account on the general ledger and posted to John Jones's account in this ledger (Entry 9, Form 22), thus leaving a balance of $10,000, or the 10% retention provided by the contract.

On completion of a contract and after the final payment has been received from the owner, the sum of the Contract and Extras less allowances should be the same as the totals of the Amount Charged Owner and the Cash Received columns.

RELATION OF COLUMNS. The difference between the Contract and Extras and the Allowance columns represents the amount of contract and net extras, $1,000,979. This net sum should agree with the contract and net extras figure shown on the architect's certificates received from time to time indicating payments due the contractor.

The net amount of contract and extras, $1,000,979, less the amount shown by the Profit column, $75,089, is the contractor's estimated cost of performing the work, $925,890. The estimated cost figures used by the cost analysis department in its reports must agree with this amount.

The difference between contract and extras, $1,000,979, and the amount charged to owners, $250,000, is the approximate value of the unfinished portion of the contract, $750,979.

The difference between the total amount charged an owner, $250,000, and the total cash received, $90,000, is the amount due from him for work completed, $160,000, and is the trial balance figure.

The amount due from the owner, $160,000, less $25,000, (10% of $250,000) is the sum, $135,000, collectible during April on April first application.