An incorrect entry or inherent errors in the accounting procedures (for instance mistakes in contract cost allotment) can endanger the system. Organizations need to make sure that their employees are well versed with the latest cost accounting policies and have a backup plan for unfortunate mishaps. The presence of recruits who are unaware of the cost accounting process often destabilize the investments made on the accounting software (Tinsley, 2010).
Time is a crucial factor when it comes to cost accounting. The organization needs to function efficiently enough to face any government audits, even if conducted on short or no prior notice. Contractors need to be prepared and tackle any situation positively enough to receive affirmative evaluation results. Dealing with a company which associates itself with a recalcitrant accounting system wastes time. Recuperating from problems and reclaiming government approval is usually harder. It can result in premature expiration of contracts, dissipation of potential business prospects and delays in getting payments for currently operational contracts. Setting up an accounting system, planning the procedures and following regulations which act in accordance with government policies provides a clear picture for the contractor. However, it's worth is undermined if he or she fails to control its management and growth. For instance, calculation of the pace at which overheads affect the system is important. However it is meaningless if the authorities fail to understand its need. Technical expertise enables improved compliance mechanisms. Government contractors are recommended to estimate their internal operations and investigate substitutes for growth. Companies which act upon these recommendations have a higher chance of maintaining their contracts and gaining new ones (Tinsley, 2010).
The methods followed by a construction contractor to calculate...
They classify costs into two basic groups -- costs accrued for the job and those for general & administrative tasks. Job costs involve compensations for sub-contractors, labor and raw materials. The managerial expenses required to fine-tune the contractual performance are part of the indirect job costs. Its categorization depends on the contractor and the complexity of the accounting mechanism. General and Administrative (G&a) costs are the commonplace expenses which cannot be assigned to any specific department, such as expenditure on the workplace (Huber, 2010).
Small scale construction contractors use the cash accounting method. The delivery of payments is documented as income based on their cash receipts. This technique is prohibited in case of a corporate business or collaboration with one. The annual financial acquisition being significant enough with regards to the gross income is another case where this method gets ruled out. The Accrual method is a lucrative alternative where the charges are collected after an expense is recorded and billed. The percentage of competition is an accrual method type which specifically monitors the income reporting process. The complete contract method (preferred by small contractors) is another type where the entire income is noted down after the job gets done (Huber, 2010).
References
n.a. (2011) What is Cost Accounting?. Retrieved from http://www.wisegeek.com/what-is-cost-accounting.htm
Tinsley, M.(2010) 6 critical accounting challenges for government contractors. Retrieved from http://washingtontechnology.com/articles/2010/06/16/federal-accounting-challenges.aspx
Huber, B.(2010,July 25) Accounting Guide for Construction. Retrieved from http://www.ehow.com/about_6772706_accounting-guide-construction-contractors.html
