Journal Entries for Contract Accounts

Sajjad R1 · 07-15-2011, 04:35 PM

<blockquote id="quote">quote<hr height="1" noshade id="quote">Originally posted by Ali Akbar
 <blockquote id="quote">quote<hr height="1" noshade id="quote">Originally posted by Shunmas
 Asalam-o-Alaikum !

I am doing contract accounts from Sir M.A.Ghani's Advanced Accounting book.

Sir Ghani says that a contact account is basically a profit & loss account (from a contarctor's point of view). All expenses are debited and income credited.

That is fine, I understand this concept.

BUT the entry for purchasing raw material is

DR. CONTRACT A/C
CR. RAW MATERIALS A/C

Now why would we credit the raw materials?

Is it same like in general business that when we buy goods (perpetual inventory system), we debit inventory and then using transferring entries, we transfer the inventory to P & L ?

Is this concept is being followed in the above the Journal entry?

Thanks

<hr height="1" noshade id="quote"></blockquote id="quote">

walaikum salam..

Yes, your understanding is inline with general business concept. However, the double entry which you mentioned should be for consumption or issuance from stores and not purchase. Initially when the inventory is purchased, following entry would be made

DR. Inventory (raw material)
CR. Bank/Creditors

When consumption/issuance is made

DR. Contract a/c /cost/P&L
CR. Inventory.
<hr height="1" noshade id="quote"></blockquote id="quote">

Contractor a/c only when Dr when make the payment to contractor and when contract is completed then
asset (dr)
Contractor
Dr balnce of Contractor transfer to asset a/c by nill the contractor a/c
+923334054651