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A memorandum account is opened with each debtor and the details of the debt shown. If Smith subsequently paid the $10, his account on this ledger would be credited. This sum would be credited to the Doubtful account on the general ledger and then transferred to Expense, the account recording the rendering of the services. This treatment is essential. The money subsequently collected belongs to the owner whenever the charge against a debtor originated on a cost-plus job which did not cost more than the guaranteed sum.

The suspense ledger is self-controlling. Postings are made to a memorandum account kept in the ledger, of all entries in the Doubtful account representing debits for accounts charged off or credits for subsequent collections.

Construction Group

This group contains three classes of accounts: Construction, Construction Expense, and Cost of Finishing Closed Contracts. The first and second record expenditures for construction. The Construction Expense account is used in connection with work being done under a cost-plus contract when the contract with the owner provides that certain items of expenditures are not chargeable to him. Such items are charged to Construction Expense for convenience in reconciling billings to an owner, the Construction account containing only expenditures chargeable to him. The Cost of Finishing Closed Contracts account is also simply an accounting convenience. Its use avoids keeping construction accounts open indefinitely. A point is always reached in the accounting on any contract when practically all construction charges have been entered on the books. A small balance is then transferred to this account to provide for minor charges which have not been entered. The Construction account is then closed into Profit and Loss.

A separate account, properly named, is used for each job. All entries in any way affecting the Construction account are

CONSTRUCTION ACCOUNT

Pro Forma Account II

Cost of construction as per

purchase register summary (J.E. 1) . . . . . . Transfer of balance of construction expense account as per journal (J. E. 2)...

Uncollectible accounts receivable as per journal (A 10)..

Expenditures reimbursed

to owner (J.E. 7). . . . . . Adjustment of prices of se

curities taken in part payment of contract prices as per journal (J.E. 11).

Adjustment of income on

above securities during period of construction as per journal...

Transfer of nominal amount

to finish contract to Cost of Finishing Completed Contracts as per journal (J.E. 3).

$500,000

500

100

509

25,000

250

I,000

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$600,000

posted in the debit column, with the exception of entries covering bills and requisitions to owners for work done. Credits reducing the cost of construction are entered in red as minus debits. The debit column shows the actual cost of construction to the contractor and his profit or loss on the contract, except for the minor charges carried in the Cost of Finishing Closed Contracts.

The only entries in the credit column are those representing bills and requisitions to the owners for work done. Any correction reducing the amount previously charged to the owner is shown in red. On the completion of a contract the total of the credit column should exactly equal the total payments made by the owner, that is, the final amount of contract and extras. The first four debits represent the actual cost of construction. Their sum is the controlling figure for the cost ledger for the job indicated by the title of the account. The "actual cost to date" shown by the cost reports must at all times equal this sum.

The item shown here as a debit of $250 is generally a credit and represents the net income accruing to contractor on securities accepted in part payment of contract. Income credited to this account ceases with completion of work. (See also Journal Entries 8 and 9.)

It is evident that the owner has been billed less than total expenditures for construction whenever the cost debited to the account is greater than billings credited. When the credits for charges against an owner are in excess of the ledger cost of construction, such excess is either part of the contractor's profit or profit plus liabilities incurred but not entered on the books. Contracts generally provide that requisitions to owners are to be based on the value of work actually performed, regardless of whether invoices for material furnished and work performed by others have been received and entered on the contractor's books.

CONSTRUCTION EXPENSE ACCOUNT

Charges as per purchase regis-
ter summary (J.E. 1). . . . . . . $500

Pro Forma Account 12

Closing of account by transfer of

balance to Construction ac-
count per journal (J.E. 2)... $500

Balance of the account always represents the total of those expenditures incurred in the construction of a job which the contract with the owner provides are not to be reimbursed to the contractor. Such expenditures are paid by the contractor out of his fee. This balance must be considered whenever the

profit or loss on a contract is determined.

COST OF FINISHING CLOSED CONTRACTS

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Individual postings should be made showing debits and credits for each job. Analysis of this account, giving balances for each job, should appear on the general ledger trial balance.

The credit of $100 on the Broadway Job is the loss represented by the difference between the $2,400 transferred from the Construction account at its closing and the $2,500 total of charges received subsequently.

The $1,600 on the Commerce and Jones Jobs represents additional profit resulting from the actual expenditures subsequent to the closing of the Construction account, being less than the sums allowed.

The $1,000 credit balance of the account is the sum transferred from the Jackson job, against which no charges have been entered.

Securities Group

This group includes accounts for securities purchased in the open market as investments and securities accepted from owners in part payment of contracts. Securities purchased are charged to the Securities Investment account. Securities accepted from an owner are carried in two accounts, Securities Temporarily Held being used for those taken from an owner in part payment and disposed of by the contractor, and. Stocks, Bonds, and Mortgages for those received and retained by him.

Full details of all securities shown by these three accounts are kept in a securities ledger (Form 23). The total of securities on hand according to this ledger must equal the balances of the three general ledger accounts.

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All entries must detail kind and quantity of securities. The $2,000 balance is the total of securities on hand, as per inventory and securities ledger, at cost.

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