Journal Entries for Contract Accounts

Shunmas · 06-24-2011, 01:03 AM

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

Ali Akbar · 06-24-2011, 07:59 AM

<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.

Sajjad R1 · 07-15-2011, 04:24 PM

<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

Dear so simple

when u made a contract with a contractors

when we purchase the material pass this enrty

Purchase (M arterial Stock) Dr
Bank/Cash/Party CR

when we issue the material then just pass this entry

Asset/Expnses dr
Raw Matetrial

we can not dr the contractor account coz material is owned by company.
we are not sales the material to contractor, Just the dr the a/c of contractor only on this case when we make the payment to cont by cr the bank,cash

Regards

Sajjad Rehman
+923334054651

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

Sajjad R1 · 07-15-2011, 04:30 PM

<blockquote id="quote">quote<hr height="1" noshade id="quote">Originally posted by Ali Akbar
 [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.

Dear here is ? for u y u Dr the account of Contractor, i think you r going wrong we just Dr the related account on which materiel is consumed.

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

Ali Akbar · 07-17-2011, 10:28 AM

<blockquote id="quote">quote<hr height="1" noshade id="quote">Originally posted by Sajjad R1
 <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

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

You seem to be confused with accounting from perspective of 'contractor' and 'contractee'. The question relates to contractor accounting and not contractee.