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tax is payable and the amount charged to the proper account to which the tax applies. When a check is issued in payment of the tax, its amount is charged to "Sundry Taxes." journal entry is then prepared as of the date of the payment, charging the reserve account or the tax official to whom the payment was made and crediting Sundry Taxes. This account should never appear on a trial balance.

Another method is first to credit accrual of taxes to the tax official and charge this account, using purchase registers (Forms 18 and 19); then credit this account and debit the account to which the tax is ultimately chargeable, and finally, credit Cash and debit the tax official for the payment made. Form 18 then is used as a continuing detail list of tax payments and is filed for reference when preparing tax returns.

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This account controls the office payrolls, as distinguished from the job payrolls for mechanics and laborers, and should be used only when there are a large number of employees on the office payroll whose salaries are charged to many different A small office payroll could be included in the Pay

accounts.

roll and Petty Cash Disbursements account. Both accounts are identical in principle. The Salary account should never appear on a trial balance. A balance indicates that proper entry of charges for the salaries paid to officers and employees on the office payroll has not been made on the purchase register.

PREPAYMENT ACCOUNTS

It may be necessary in some cases to open prepayment accounts to take care of such items as affect a succeeding fiscal period's business and are large enough to justify it, such as advance taxes, advance general expenses, advance operating charges, prepaid insurance, etc. Prepayment accounts have the customary meaning and usage.

DEPRECIATION

Depreciation on contractor's equipment and on furniture is discussed in Chapter XV.

CHAPTER XIV

FINANCIAL STATEMENTS

STATEMENT OF UNCOMPLETED CONTRACTS

Importance of These Statements

Various statements are required to indicate the status of the different phases of a contractor's business. The most important are the statement of uncompleted contracts, the profit and loss statement, and the balance sheet. A contractor always has one or more partially completed contracts on hand during any period of normal activity. Work under a contract may be begun in any month of his fiscal year and be completed any time. General overhead expense continues throughout the year. Employees whose salaries are charged to overhead are not idle but are assisting in the prosecution of the uncompleted contracts. Their efforts are producing an income. This income should be calculated, if possible, whenever the salaries of those earning it are charged to Profit and Loss.

It will undoubtedly be helpful to go over the conditions attending contracts in various stages of completion before taking up the method of figuring profits and the preparation of the balance sheet and the profit and loss statement.

It is as essential for a contractor to be thoroughly familiar with the cash status of his contracts as it is for him to have a knowledge of gains and losses on work in progress. His workmen must be paid promptly and his bills for material and work done by subcontractors must be settled. The cash he invests in the business goes immediately into construction wages and material. If his available capital remains "tied up," the knowledge that owners owe him more than the work has cost him

and that he is apparently making a profit will not enable him to meet his payrolls. Bankruptcy will come more quickly from this cause than from having little work and small profits.

The statement of uncompleted contracts indicates to a contractor the portion of his capital invested in each contract at the end of each month, and whether this condition will be improved by collections and disbursements during the following month.

Selecting the Form of the Statement

Three statements will be explained. The information developed by statement A is very similar to that shown by statement B. Statement C is a brief summary acting as the indicator of the time in the future when overhead expenses will absorb profits on construction.

The form of statement to be adopted for any particular contractor's office is dependent partly upon the number and character of jobs he has on hand and partly on the requirements of the man who reviews the statements. Statement A, either as illustrated or in a modified form, will undoubtedly furnish all the information in which a chief executive may be interested. Statement B is more one for the accounting executive, or the executive in charge of finances, than it is for the chief executive of an organization or the board of directors.

Source of Information

The records required for the preparation of these statements are the cost reports, the general ledger, the contract ledgers, and applications to owners. The statements illustrated are taken as of October 31, 1922. The cost reports as of that date showed work of construction would result in the actual cost being $25,000 less than the estimated cost on the Hudson job; $30,000 less on the Jones; $20,000 less on the Williams;

and that the actual cost would exceed the estimated cost by $10,000 on the Hudnut, and $35,000 on the Ford.

The general ledger trial balance as of the same date con

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Reference to the ledger accounts shows that these balances result from the following entries:

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