Broderick Associates

Accounting for long-term construction contracts involves unique accounting not covered in most accounting courses. The vocabulary and principles behind accounting for construction contracts is introduced here with examples and exercises covering profitable and non-profitable contracts in addition to how to account for changes in estimated costs.

Objectives

Upon completing this self-study you should be able to:

• understand the nature and vocabulary of long term construction contracts
• account for a construction contract using both the completed contract and percentage of completion methods
• understand how to account for changes in estimated costs
• understand how to account for contracts that report a loss

Instructions

This study is broken down into units. In each unit, the approach is to:

• develop the logic behind a particular point (or subject)
• illustrate the logic through an example (or examples)
• give exercises that require you to demonstrate your understanding of the material
• at the end of each unit are a series of problems for you to work

The exercises contained within each unit are straightforward and parallel the concepts developed in the text. If you choose to print the unit, space is provided within the study (after each exercise) for your answers. Work all exercises and check your answers against the answers provided. Even if you arrive at the correct answer, review the suggested solution since it provides a step-by-step approach to problem solving. It may also provide a better understanding of the material.

Prerequisite Knowledge

• an understanding of the basics of accounting, including familiarity with journal entries, t-accounts, and the structure of the financial statements (balance sheet, income statement, cash flow statement)
• an understanding of the principles behind financial accounting including revenue recognition, capitalization and expensing of costs (the matching principle) and historical cost, et. al.