CHAPTER VIII

ACCOUNTING PROCEDURE

Plan of Presentation

The contractor's accounting procedure in connection with the employment of labor and preparation of payrolls, with the entering and payment of material invoices and service charges, and with the treatment of his equipment, will be first discussed. The books of account will next be explained in detail, with the accounting on the general ledger illustrated by pro forma journal entries and accounts. The financial statements will then be taken up, and finally miscellaneous matters pertaining to construction accounting will be emphasized.

At the beginning of this part of the book, attention may again be called to the distinction between general and cost accounting. The basic principles of general accounting procedure given here are applicable to any branch of the construction industry. The difference between, for example, the accounts for a contractor building a dam and one constructing an office building, lies chiefly in the cost accounts he must keep. There may, of course, be a difference in the accounts carried on the general ledger. The contractor building a dam may want to keep some of his cost accounts (either cost operating or cost investment) on the general ledger, such as commissary operation, commissary buildings, etc., while the contractor building an office structure may have some other accounts in the ledger, such as that for securities taken in part payment of the contract price.

The theories underlying checking and recording workmen's time are not affected by the number of men employed or the character of the work they are doing. Nor are the theories

which apply to purchasing and payment of materials, or the subletting of work, affected by the place where the work is being done or its character. The price may be affected but not the theory of accounting.

The distinctions in cost accounting between various construction jobs are explained in Chapter XXI.

Payrolls for Field Employees

The treatment and preparation of payrolls in the field were discussed in Chapter III. Should a contractor prefer having the payrolls written up in his office, the field records are transmitted for that purpose, but great care must be taken to guard against loss in transit. Office preparation has an advantage when a contractor's total field organization is small and the workmen are employed on different jobs during the week. Clerical work is reduced and duplication of workmen's time is avoided.

OFFICE EXAMINATION OF PAYROLLS. Some employee of the accounting department should be charged with the duty of examining the duplicates of employment and discharge tickets to see that all are properly made out, that they are received promptly each day, and that serial numbers are accounted for in numerical sequence as issued. The duplicates serve no further purpose except for reference and checking with the originals.

The original employment tickets are checked with the payroll as authority for men added during the payroll period. A comparison is then made with the names of men who were on the preceding payroll. These two steps should account for every workman to whom time was credited during the period. The discharge tickets are then compared with the payroll to see that earned time ceased with the hour indicated on the ticket.

After the verification of the payroll with the employment

tickets, the original tickets are placed, in separate active files for each job, in the order of the workmen's numbers. When the checking of the payroll with the discharge tickets has been completed, the employment tickets originally issued to the workmen now discharged are taken out of the employment ticket file and attached to the discharge tickets. This employment ticket file for any particular job contains at this point only the employment cards for men still working on it, as shown by the Amount Due column of the payroll.

The signature of the workman when beginning his employment, as shown by the employment ticket, and his signature at the termination thereof, as appearing on the discharge ticket, are compared. The employment and the discharge tickets are placed in an inactive file for the job on which the workmen were engaged, in numerical order according to workmen's numbers.

The time cards, showing the daily checking in the field, should remain on the job until the end of the payroll period succeeding the one to which they apply, in order to aid the timekeeper when a workman claims a shortage in the time given him. The cards thereafter should be sent to the office and retained there, as they are the original time-checking records. Any shortage claimed by a workman should be verified by his foreman before the time is allowed. Tests of time shown on tally cards with that appearing on payroll sheets should be made in the contractor's office.

UNCLAIMED WAGES. Any envelopes remaining uncalled for after the lapse of three months after the date of the payroll, are opened in the office, the currency removed and deposited in the bank, and the wages are credited to the cost of the job on which the workman was engaged. A careful record is kept by the office cashier of all uncalled-for pay envelopes received by him from the jobs and the disposition made of them,

either in the form of receipts from the workmen or cash deposited in the bank.

Accounting procedure generally requires that all unclaimed wages be set up as outstanding liabilities. In over twenty years' experience in construction work, the author has met with only isolated cases where a workman called for wages after the pay envelopes had been opened and the currency credited to the cost of construction. Unless a workman is physically unable to do so, he generally collects his pay within a week after it is first due.

When pay envelopes are not called for within three months, experience shows that they are seldom called for at all. The unclaimed wages record kept by the cashier shows full details of each pay envelope returned to him and the disposition made of it, and serves as the list of unpaid wages deposited in a bank.

RECEIPT FOR WAGES AND PAYROLLS. It will be noticed that no provision was made in Chapter III for obtaining receipts. from workmen who receive their pay in pay envelopes. This is because the majority of unions will not consent to their members signing receipts. An exception to this rule was made on governmental work during the war period. Some unions even provide that their members must be paid wherever they are at work, on the scaffolds or elsewhere. The men also are not permitted to go to the time office for their money after quitting time without receiving extra pay. Most unions have a rule that if pay is delayed beyond a stated period after quitting time, the men must be paid for waiting time.

While no receipt is generally taken from individual workmen, the timekeeper should sign one for the entire payroll. The receipt should show the total payroll divided into two amounts: first, the total currency given the timekeeper to reimburse him for wages paid to men discharged during the period, as shown by the total of the Amount Paid column; and

second, the number of pay envelopes given him and the total wages they represent, as indicated by the total of the Amount Due column. The receipt should further give the name of the job on which the payroll was earned and also the payroll date. The object in taking a receipt from the timekeeper is not only for purposes of auditing, but also, if the timekeeper is under bond, to insure its being possible to prove to a bonding company the delivery of payroll funds to him.

ACCOUNTING ENTRIES FOR PAYROLLS. The accounting entry in connection with payrolls requires in the cash book a credit to Cash and a debit to Payroll account with the amount drawn for the payrolls on all operations. The withdrawal should be for the exact amount of the payrolls, including the wages of the men discharged or laid off, as shown by the Amount Paid column, and also those still employed on the job, as indicated by the Amount Due column. The wages for discharges are paid by the timekeeper out of his imprest fund, and the difference between the amount of the check drawn and the amount of currency placed in the pay envelope is given to the timekeeper in reimbursement of payments made during the period.

An office entry (Form 16) is prepared and entered on the purchase register (Entry 3, Form 19, page 131) as a charge to the job on which the payroll was earned and a credit to Payroll account. The purpose of what may appear to be an extra entry arises from the necessity of the cost analysis department having complete information as to all items of cost to enable it to obtain the proper unit costs of production. The only source from which the cost analysis department secures this information is the purchase register, prepared in duplicate (Forms 18, and 19, pages 130, 131). When unclaimed wages are deposited, Cash is charged on the cash book and Payroll account credited. An office entry is prepared, entered on the purchase register as