THE LIBRARY OF THE UNIVERSITY OF CALIFORNIA LOS ANGELES HUE on the last date stamped below Graduate So>^ol of Business Administration TJni"*ra.11;y of California Los Angeles 24, California PRACTICAL ACCOUNTING FOR GENERAL CONTRACTORS PUBLISHERS OF 6OOK.S FO R_^ Coal Age v Electric Railway Journal Electrical Ubrld v Engineering News-Record American Machinist * Ingenieria Internacional Engineering 8 Mining Journal ^ Power Chemical 6 Metallurgical Engineering Electncal Merchandising PRACTICAL ACCOUNTING FOR GENERAL CONTRACTORS BY H. D. GRANT STAFF OF W. B. RICHARDS * CO., ACCOUNTANTS AND ENGINEERS FORMERLY WITH THE AMERICAN WOOLEN CO.; OFFICE MANAGER FOR KUNHARDT 4 STOCKTON; AUDITOR, HUDSON & MANHATTAN RAILROAD co. ; TREASURER L. K. COMSTOCK & CO., ELECTRICAL. ENGINEERS AND CONTRACTORS; FIELD AUDITOR FOR THE UNITED STATES GOVERNMENT FIRST EDITION McGRAW-HILL BOOK COMPANY, INC. NEW YORK: 370 SEVENTH AVENUE LONDON: 6& 8 BOUVERIE ST., E. C. 4 1922 400G5 COPYRIGHT, 1922, BY THE MCGRAW-HILL BOOK COMPANY, INC. MAPI,*! -PKE88 Y O H K PA Bus. Admfn. Library \4F 5GSG CG5 G-1 PREFACE There are many excellent text books on general account- ing and every manufacturing industry of any size and complexity has an accounting literature of its own. But little if anything of a comprehensive nature has been written about a system of accounting to fit the needs of the con- tractor. This lack is the more noteworthy for two reasons : First, practically all building and construction work is carried out by estimate and contract and the size and importance of the business are self-evident; secondly, the basis of accuracy in estimating depends upon accurate records and therefore the contractor even more than the manufacturer needs all the help that is to be obtained from a complete system of accounts. The need for a comprehensive work on accounting for contractors was brought home to the author some years ago when engaged to take charge of the accounting depart- ment of a large contracting concern. The faults of the system of records in use were many and glaring; the remedy had to be devised to fit the needs of the case. After a period of close observation and experiment a system of accounts and accounting control was evolved which ful- filled the essential requirements by giving the contractor the information he required for the management of his business promptly and at a time when he could make use of it. This book in part contains a description of the system to which is added a discussion of the methods and account- ing practice that have become the standard practice in those contracting businesses where adequate records are kept. The author wishes to acknowledge his indebtedness and express his gratitude to L. K. Comstock, an engineer and vi PREFACE contractor of wide experience, whose technical knowledge has been generously placed at the writer's disposal. Mr. Comstock's criticism and explanation of technical matters has been invaluable as an aid in making this book what it purports to be a practical tool for the management of the contractor's business. Acknowledgment is also made to Mr. Rindfoos for his courtesy in allowing the privilege of reproducing various forms of contractual agreements made between the owner and contractor, which were taken from one of his books. H. D. GRANT. BROOKLYN, N. Y., May, 1922. CONTENTS PART I PAGE CHAPTER I. REQUIREMENTS FOR SUCCESSFUL, OPERATION .... 1 Necessity for an accounting system Cost accounting require- ments, 3 Construction contracts, 4 Importance of adequate control, 5 Importance of working capital, 6. CHAPTER II. TYPES OF CONSTRUCTION CONTRACTS 9 Introduction General contractor and his duties Sub-contrac- tors, 10 Lump sum contracts, 11 Upset limit contracts, 14 Time and material contracts, 15 Fixed fee contracts, 17 Unit price contracts, 19 Jobbing work. CHAPTER III. COST PLUS CONTRACTS 21 Methods of financing Interest on capital investment, 24 Illus- tration of cost plus operation Material supplied from contractors stock, 25 Pricing contractor's materials Effect of Rising Prices, 27 Equitable adjustment of Percentage Rate, 28. CHAPTER IV. THE FINANCIAL ACCOUNTS AND RECORDS .... 31 General journal, 32 Auxiliary records, 35 Cash record, 35 Method of proving balances, 38 Control figures, 40 Accounts receivable ledger, 45 Accounts receivable ledger other than lump sum contracts, 47 Accounts payable ledger, 49 Filing original papers, 50 Schedule of unfinished contracts Cost to complete unfinished contracts, 52 State cost and income abstract, 53. CHAPTER V. FIGURE ANALYSIS BOOK 56 Chart of accounts Sections of figure analysis book, 58 Distribu- tion of Vendors' invoices, 59 Charginglmaterial to contracts, 61 Accounts payable control figures, 63 Labor and expense charge- able to contracts, 64 Jobbing section, 65 Overhead or general expense, 67 Analysis of store room orders and transfers, 69 Unearned contract sales, 70 Consolidated journal entry of con- trol figures, 71 Inventory of unbilled costs, 73. CHAPTER VI. HANDLING PURCHASE AND STORE-ROOM ORDERS. . 77 Source of charges, 77 Issuance of purchase orders Checking invoices, 78 Method of recording sub-contracts, 79 Transfer tickets, 83 Time sheets and foremen's reports Record of purchase prices, 85 Methods of filing records Handling expense items, 87. viii CONTENTS PAGE CHAPTER VII. RECORDING INCOME AND EXPENSE 90 Billing sales Lump sum requisitions Fee and plant rental requi- sitions, 92 Measuring earned sales, 93 Schedule of cost to finish, 94 Compilation of schedule of closed contract and jobbing work, 96 Summary of entries, 98 General expense, overhead distribu- tion, 99 Workmen's compensation, 100 Instructions for posting, 101. CHAPTER VIII. GENERAL LEDGER ACCOUNTS 103 Schedule of accounts. CHAPTER IX. SUMMARY OF SEQUENCE OF OPERATION 121 Daily entries End of month charges and credits to control, 127 Fiscal closing entries, 131. CHAPTER X. THE FINANCIAL STATEMENTS 134 Forecasting financial expenditures The financial statements, 136. PART II FIELD ACCOUNTING CONTROL CHAPTER XI. COST ACCOUNTS AND UNIT COSTS 145 Need for cost accounting Objects of cost accounting, 146 Cumu- lative classified unit cost record, 147 Contract cost financed by owner, 150 Sub-contracts, 152. CHAPTER XII. ORGANIZATION AND PERSONNEL 154 Duties of the auditor, 155 Duties of auditor's assistants Duties of disbursing agent, 156 The works superintendent, 157 The cost engineer Monthly reports to owner, 159. CHAPTER XIII. CLASSIFICATION AND SYMBOLIZATION OF ACCOUNTS 161 Basis of account groups Main group classification Labor, materials and direct expense classification, 162 General expense classification, 163 Sub-contract classification, 164 Illustrative sub-account classification, 165. CHAPTER XIV. FIELD ACCOUNTING RECORDS 170 Main records Cash and ledger control journal, 171 Invoice and payroll register Construction cost record, 176 Accounts payable ledger Simplification of system, 178. CHAPTER XV. HANDLING FIELD PAPERS 181 Field accounting forms Field orders, 182 Invoices for materials and expense Store-room orders, 187 Verification of time records, 191 Plant rental, 194 Freight bills, 195 Recording salvaged material Contract liability of owner, 196 Condensed sequence of operation, 199. CONTENTS ix PAGE CHAPTER XVI. MONTHLY REPORT TO OWNER 201 Nature of report Statement of construction costs Main group and suspense accounts, 203 Analysis of pay lists Transcript of ledger control accounts. PART III MISCELLANEOUS MATTERS CHAPTER XVII. PAYROLL PROBLEMS 207 Weekly payroll Handling payroll receipts, 208 Audit of payroll, 209 Putting up the money Denominating machine for payroll, work, 210 Daily time checking systems, 211. CHAPTER XVIII. CONTROL OF EQUIPMENT 213 Equipment card ledger Keeping track of equipment in use Classification of equipment, 215 Charges for plant rental, 216 Small tools, 217. CHAPTER XIX. PREPARATION OF ESTIMATES AND BIDS 218 Creation of contract Elements of cost, 219 Points to watch in compiling estimates Determination of plant expense, 221 Esti- mation of profit. CHAPTER XX. MUNICIPAL CONTRACTS 223 Proposals to bid Contract guarantees, 224 Municipal contract register and accounting Specimen contract bids, 226. CHAPTER XXI. LEGAL ASPECTS OF CONTRACTS 232 Contract defined, elements Enforceability Offer and acceptance, 233 Implied contract, Quasi contract Intention Consideration, 234 Agent and principal, 235 Daurages, 236 Assumpsit. APPENDIX CONTRACTUAL AGREEMENT 237 Building agreement Lump sum, 238 Cost plus a fee, 242 Per- centage basis, 246. PRACTICAL ACCOUNTING FOR GENERAL CONTRACTORS PART ONE FINANCIAL ACCOUNTING CHAPTER I REQUIREMENTS FOR SUCCESSFUL OPERATION Necessity for an Accounting System. When discussing accounting methods with a contractor it is not unusual for him to raise the objection that his business is different from others and therefore any cut-and-dried system of accounting for contractors is not practical and will not work in his business. That his business is different from others is true enough; but to suppose that accounting methods cannot be devised to fit his particular needs and prove "practical" in scores of different ways is far from being true. It is a commonplace of successful accounting practice that the installation and development of every system must be adapted in its details to the conditions but that certain principles and certain basic records govern the account keeping in every business of the same type. Accounting systems for manufacturers, when carefully adapted to the needs of a particular plant give highly satisfactory results and prove managerial tools of such efficacy that when once tried they are seldom if ever dis- pensed with. Though a standard system of accounting does not yet exist for use in the general contracting business there is no reason why its mechanism cannot be devised and the principles and methods of its application formu- ated. It is possible to control the operations of the con- tracting business with the same accuracy and relative economy as those of a manufacturer are controlled when methods and records have been devised that apply to the contractor's needs. The accounting system for contractors to be described in this book presents certain methods of record not hitherto formulated into a complete system. The primary aim of this system is the coordination and control of operations whereby the status of the various contracts, both individu- ally and collectively, can be ascertained at any time. Secondary aims of the system are to furnish the contractor with the information of most value to him in the financing and management of his business, information which may be tabulated as follows: 1. The amount of cash in bank each morning. 2. The forecasted monthly receipts and expenditures. 3. The monthly anticipated sales their net cost and net approximate profit. 4. The monthly and yearly earnings on contracts. 5. The monthly and yearly earnings on jobbing work. 6. The equity in open contracts and jobbing work unbilled and unrequisitioned to date. 7. A forecast at each fiscal period showing the estimated net profits on unfinished contracts, such information being presented in a statement of the total amount of estimated unfinished contracts from which is deducted the total estimated "Cost to Complete." 8. The total sales and total cost of sales for work per- formed in each state (if operations are carried on in several states), to facilitate the rendering of tax reports based on net profits earned during the fiscal year. 9. The liability to sub-contractors for unfinished work, kept on distinct records, separate from the accounts of REQ U I RE MEN TS FOR S UCCESSF UL OPERA TION 3 ordinary vendors, thus showing the absorption of the value of sub-contract work in current costs. 10. A cumulative record of costs, showing (1) the classified units of each kind of material estimated and ordered to coyer the contract, and (2) the estimated total labor and expense which is to be absorbed weekly thus furnishing the estimated cost to finish. These records when finished are filed and become valuable as a reference for bids on repeat orders, or subsequent parallel contracts. In addition to the foregoing information the system includes a description of the proper methods to be adopted for the control of field contract work on the books of the general contractor, and the control of the job fund. Com- plete instructions are given for the installation and mainte- nance of a field accounting system with a detailed symbol distribution of cost to be operated by the contractor's staff and controlled by only four book records. The foregoing information covers all the requirements of the general contracting business no matter how extensive may be the operations in an individual case. Cost Accounting Requirements. Contractual cost accounting requires as many, if not more, internal cost accounts than a manufacturing business and some of these accounts are more difficult of manipulation. If the construction job is of any magnitude the cost and income accounts may represent an array of items numbering thou- sands. Later in the discussion it will be seen that every detail of cost and income must be distributed, in an accu- rate manner, and, at the same time, such distribution must be controlled, step by step. The volume of detail entering into cost and income naturally increases with the extent of the operations. The monthly accrual of sales, the collectible accounts, the payments due vendors, the forecasted payroll, the true expense and cost, must all be show r n in their truthful aspect. Vendors' invoices may come in monthly, by thousands. Hundreds of store room orders may be issued 4 PRACTICAL ACCOUNTING FOR GENERAL CONTRACTORS each month, each of which must be segregated to the contract or job affected. In a large, active business, the purchasing and paying for material goes on constantly. And, in addition to the entries in the regular books of ac- count, one must not lose sight of the fact that an important supplementary record which must be kept up to date, is that in which are shown total costs and total income accruing in each state during each year. All states require the contractor to file a report of work done therein during the year, so that he may be taxed upon the annual net profit made within the boundaries of each state. Construction Contracts. Contract plans must be care- fully prepared after which they should be approved by all parties interested. The next step is the preparation of the specification. The specification is a document describ- ing the materials to be used in the construction, stating how they are to be used, and indicating how the various works are to be executed. Every portion of the work involved in the construction, should be covered by this document. The specification is written under the direction of the architect. Usually, two copies of the paper are made; one copy is given the contractor and the other is retained by the architect who directs the preparation of an approxi- mate estimate of the cost of the proposed work. The bills of quantities are prepared by a quantity surveyor. These generally become part of the contract and are specified as such therein. Based upon the drawings made, the quantity surveyor estimates the materials required for the work, setting out the quantities of each in the form of a bill, made up on journal-ruled paper, to enable the contractor to price each item, and to estimate the amount of labor involved. The idea behind this estimate is to arrive at a lump sum for which the contractor will undertake to do the work. Before beginning construction activities, the contractor must sign a contract, to the effect that he will, for a stated REQ UIREMENTS FOR S UCCESSFUL OPERA TION 5 sum of money, undertake to carry out the work, in accor- dance with the terms of the specifications, the drawings, the bills of quantities and the instructions of the architect. Further, the contract should state that the work must be done to the entire satisfaction of the architect; it should specify the manner of carrying on the work and the responsibilities of the contractor. This last condition refers especially to clauses indemnifying the employer against accidents to employees and against numerous other risks. Likewise, the agreement should contain clauses relating to the completion of the work, the penalty for non-completion (the usual allowance being made for bad weather, fire or strikes) and should specify all payments to be made to the contractor as the work progresses. The requirements of each case will govern the contents of the contract made relative thereto. As, a rule, the architect prepares this agreement. The essential features of contracts and the laws governing them are discussed in the last chapter of this book. Importance of Adequate Control. There is no reason why construction accounts should not be handled as accurately and expeditiously as accounts in other lines of business. Most accountants, for instance, are familiar with the accounting system of a small cloak and suit house which has its work done on a contract basis and most of these houses have a system of accounts which is both accurate and satisfactory. But when we come to con- struction work, system and accuracy are not always encountered. The contract undertaken by the Thompson-Starrett Co. to erect the Equitable Building involved probably the expenditure of twenty millions of dollars; that of the George A. Fuller Co. for the erection of the Pennsylvania Hotel, involved at least a like amount. Each of these jobs took 2 years to complete, and millions of dollars were received and disbursed within that time. Unless works of such magnitude are controlled at every step by an accurate 6 PR A CTICA L A CCO UN TING FOR GENERA L CON TRACTORS system of accounts, waste, leakages, and excessive costs make it impossible for the contractor to keep within the estimated figures. Importance of Working Capital. If one wishes to become a successful general contractor, certain financial considerations, all of which are closely related to the matter of "working capital," should be borne in mind. In brief, these may be enumerated as follows: 1. The contractor must have ample working capital or the credit to procure that capital as it is required. In j amount, this may reach 10 per cent or more of the total value of the work performed, plus the uncollected accounts accrued and due. Labor must be paid weekly and vendors' bills fall due within a limited length of time, whereas, collections at best do not come in more frequently than once a month, with a possible retention of part of the amount due until final payment is made. 2. The contractor should know by forecast on the first of each month, the extent of his obligations what he has to expend during the current month, his collections from customers, and the amount he can get on bank credit. The possible receipts should be more than enough to meet the necessary estimated expenditures. In computing possible receipts from customers, delinquents should of course be excluded 3. Care should be observed in the purchase of materials, in order not to overburden the business with surplus stock. If goods are purchased in quantities on a low market, and stored against future high prices, the saving should more than equal the standard rate of interest on the tied-up capital. Ordinarily, material should be purchased to meet the requirements of the contracts under way; in effect, this requires material to be delivered as the contracts are ready for their installation. Every dollar's worth of waiting material represents so much investment eating up interest. This fact is reflected in the charges for bank loans. 4. Overhead extravagance, administration and selling REQ U I RE MEN TS FOR S UCCESSF UL OPERA TION 7 expenses, should be curtailed to the irreducible minimum and compensation should be paid for capacity and effort only; incompetence of any kind should not be condoned. The last recommendation enumerated above may sound like a counsel of perfection, easier said than done; but if the contractor keeps adequate records he should be able to detect extravagance and waste at their source and be in a position to recognize capacity and effort. In extreme instances, as when a piece of construction requires several years' time and the investment of millions of dollars before the work is completed, the force of the above remarks is perhaps better appreciated than where the job is only a small one. Yet the underlying principles in either case are the same; success or failure depends upon their proper application. It is not uncommon for an authentic and reliable state- ment of a contractor's business to show a surplus and undivided profits equal to one half the total assets and yet for the accounts receivable to be three times the amount of the liabilities to trade creditors. These obligations have to be paid during the current month and the contractor has to renew notes with his bank falling due during the month equal to 10 per cent of the anticipated collections. Such a condition is usually caused by the big " hold-back" in the form of the retention of part of the payments due on the requisition for work performed. A contractor doing work on requisition is never on even terms with his customer until the final payment is made; in the interim between the beginning and end of a contract, the amount retained on each requisition constantly accumulates and this deferred income usually amounts to approximately 10 per cent of the volume of business done annually. As this retention is a necessary evil of the contracting business, the only remedy is to lift the burden from the contractor's shoulders to the broader back of the bank an institution that is generally willing to carry it for due consideration. In building and equipping a large vessel, for example, 8 PR A CTICA L A CCO UN TING FOR GENERA L CONTRA CTORS the time element may cover 3 or 4 years and the outlay may amount to several millions of dollars. The problem, in such an extraordinary case, is solved by throwing a large part of the burden of providing the expenses of con- struction upon the purchaser. Even with comparatively small pieces of construction this arrangement is customary. The construction contract may provide for the inspection and acceptance of the work when completed up to givent, stages, or at given intervals and for payment on account by the purchaser of a proportionate share of the contract price. If such contracts were invariably made and adhered to, insolvencies in the contracting business would be less frequent, for there is scarcely any line of business in which bankruptcies are more numerous in proportion to the number engaged in the work. The explanation is nearly always the same; the working capital is not sufficient to "swing" its undertakings. This is a difficulty which is peculiarly apt to confront all enterprising, progressive and otherwise successful contractors. There is only one remedy the caution engendered by an adequate- account keeping system. CHAPTER II TYPES OF CONSTRUCTION CONTRACTS Introduction. In this and the following chapter will be discussed the types of construction contracts that may be entered into, their advantages and limitations, and the opening entries required for their record on the books of account. These entries should be carefully studied as upon their proper record depends largely the correctness of the entries to be made later. The office routine involved in the handling of these contracts will also be explained as far as is necessary to make clear the general procedure in recording a specific contract. The General Contractor and His Duties. The general contractor covers the whole contract. Any work which is not handled by him directly, but which is performed by some other party, is said to be taken care of by a "sub- contractor." The term "general contractor" is elastic. On a large contract there may be ten or more sections of the work sub-contracted for; each one of these sub-contractors may be said to be a sub-general contractor when he, in turn, lets a sub-contract for part of the work he has agreed to perform for the general contractor. The duties of a contractor are similar to those of the architect, except that he is not expected to plan and design. His field of endeavor is to carry out the plans and designs of the architect in the actual work of construction. It follows that the contractor must be thoroughly qualified for his duties. He must be especially familiar with the erection of scaffoldings, shorings, etc.; he should have a thorough knowledge of materials, including such special information as qualifying marks or brands, the special features of good and bad in each class, and their adapt- 9 10 PRACTICAL ACCOUNTING FOR GENERAL CONTRACTORS ability to specific conditions; and should be able to control and manage men. Sub-contractors. As mentioned above, a sub-contractor is a person who performs some of the work on a construction job under contract, thereby relieving the general contractor from the necessity of handling all the work himself directly. The sub-contractor's price, as agreed upon between the two, should not be charged at once into the cost of the general contract. It should be entered upon the books of account as a deferred item, thus: Debit: Deferred Contract Cost Credit: Sub-contractor (an account payable) Monthly, when the sub-contractor sends his requisition to the contractor asking payment for the work performed, the value as shown thereon is taken up into the accounts, as follows: Debit: Accrued Contract Cost Credit: Deferred Contract Cost A notation on the sub-contractor's account in the Accounts Payable Ledger should be made to the effect that this amount has been approved for payment. When the bill is paid, the entry for payment is handled through the Cash Book in the regular manner. Types of Construction Contracts. Types of construc- tion contracts under which the contractor works are many. The following are typical: 1. Lump sum, or set price contract. 2. Upset limit contract. 3. Time and material contract. 4. Fee contract. 5. Unit price contract. 6. Jobbing work contract. 7. Cost plus contract. In this chapter will be discussed all the above topics of contract with the exception of cost plus contracts which are to be taken up in the following chapter. TYPES OF CONSTRUCTION CONTRACTS 11 Lump Sum or Set Price Contracts. Under the lump sum or set price contract the contractor agrees to do for the owner certain work for the performance of which he is to be paid a stated amount. The difference between the cost and agreed price, on completion of the work, measures the amount of profit or loss for or against the contractor. The work is to be performed subject to thie architect's approval. The bid made by the contractor, based upon his estimate of cost, governs the stated amount the con- tractor is to receive for a specifically stated class of work. The amount agreed upon is collectable by the contractor in full only upon the performance of the work as set out in the bid. The owner cannot be held for more than the lump sum agreed upon; but the contractor must complete the work even at a loss to himself. If the contractor finishes the job at a loss, he has no recourse against the owner to make good such loss. The owner, if the loss was unforeseen or unavoidable, may be considerate enough to allow the contractor additional compensation for his outlay. But such instances are rare; they are not consid- ered "good business." As soon as the contract is properly signed by the parties thereto, a bill should be made out immediately which, when entered in the books constitutes the first record of the contract as follows: Debit: Owner. Credit: Unearned Contract Sales. The above entry is made for the full amount. The contract is then given a number by which it will be known during its life. It is next filed in an upright folder in its consecutive order. The original contract may be productive of additional work, for the reason that the requirements were not covered fully in the original specifications. All such extra work is given to the contractor by the issuance of what are known as "Extra Orders." These extra orders must be approved 12 PRACTICAL ACCOUNTING FOR GENERAL CONTRACTORS by the architect, and, when so issued and approved, they form an integral part of the original contract, but are suppl- mental to the agreed price. Some customers pay these extra orders in full, when complete, by separate check; others pay them partially, reserving an amount to which the contract is subject. In this latter case, they are added to the contract price on the monthly requisition, to show the total amount under contract for which payment is to be made. At the end of the month these contracts are subject to requisition for the amount of work completed, minus the reserve and cash paid on account. They are classed as speculative contracts because the profit they may produce is an uncertain quantity. Although estimated to bring in a profit the actual result may be a loss. Frequently the sum total of extra orders exceeds the payments to be made under the original agreement. All extra work orders in connection with a contract should be made in duplicate and numbered consecutively from one up. Upon receipt of the tw r o copies, the original goes to the foreman on the job, and the duplicate is placed on file in the accounting office. When the original is later returned to the office with the price affixed, as is the custom, it is filed with the original contract. The duplicate is retained, to be used as a posting medium for completed extra orders; the entry at the time of return of original copy should be similar to the one made above, viz. Debit: Owner. Credit: Unearned Contract Sales Deduction for cancellation of any extra orders issued or, allowances for any modifications of the original contract price are all numbered in the same sequence as the numbers given the extra orders and when posted against the owner on accounts receivable, these credits should be entered therein on the debit side in red figures. This method eliminates confusion often occasioned by numerous allow- TYPES OF CONSTRUCTION CONTRACTS 13 ances being entered on the credit side of the account with payments. If this is done, the net footing of the debit side of the account with the owner will show the total value contracted for, while the credit side will show only the actual cash collected. The debit for these deduction entries, to offset the credits mentioned above, should be entered in red figures on the credit side of the account with unearned contract sales, in order to reduce this accounts credit footing to its proper status of net sales. A lump sum or set price contract may be subject to a time limit. If so, it may be agreed that the owner is to reserve a certain percentage, ranging from 5 to 15 per cent, of each month's payment due the contractor until the work is fully completed. At such time, if completion is made within the limit, the reserved amount will be paid the contractor. In relation to the above discussion the principles con- cerned with this type of contract may be summarized as follows : 1. The original contract plus extra orders equals contract price. Contract price, less deductions, equals net contract value. 2. "Cost in," that is total expenditure to date, plus 10 per cent for overhead and profit, equals proportion of contract price, less retention, equals collectible amount. 3. Collectible amount less cash paid equals amount due upon current requisition. 4. Amount reserved by owner is deferred until final payment. Thus the amount of the contract cost is the burden of investment which the owner must assume personally. 5. The portion of this class of contract, as above stated, which is accrued and due, and represents the accrued sales, is the "cost in" plus overhead, on the basis of 10 per cent. The "cost in" plus 10 per cent, for overhead and profit should be transferred at the end of the month by a charge to Unearned Contract Sales account and a credit 14 PRACTICAL ACCOUNTING FOR GENERAL CONTRACTORS to Earned Contract Sales. This amount constitutes as nearly as it is possible to calculate the income, that is, the gross sales, on contracts of this class. A general contractor may sub-let various parts of the work to other contractors upon any terms he deems desirable. It would be more consistent, however, to sub-let under the conditions he has assumed on the original contract. By so doing, his payments to sub- contractors for the part completed each month are equa- lized and conform with the payments received from the owner; both would be reimbursed equitably in proportion to the percentage of work performed by each. Set price or lump sum contracts as above described, whether for construction work or job work, are those most commonly made and the discussion in this book assumes that such contracts are being considered unless otherwise stated. Upset Limit Contracts Can be No More; Can be Less. This class of contract is an agreement between the con- tractor and owner whereby the former is to perform work for the latter, which, no matter what the cost is to the former, shall not exceed a price limit to the latter. If the price agreed is, say $50,000 and it costs $55,000 to complete the work, the contractor can only collect $50,000, thereby sustaining a loss of $5,000. On the other hand, if the completed work cost, $45,000., this latter amount is all he can collect. However, this upset is usually at a limit which will fully provide for the cost, and return a profit as well. The very fact of the limit shows that the clamp is on pretty tight. This class of contract is not much sought after, and, as a general thing, is the exception rather than the rule. Such contracts are treated like a set price contract, as far as recording and filing goes. While they might be prolific of extra orders, it is an unusual thing for the contractor to get any work beyond that covered by the upset price. The word cost, as above used, means "whole cost," includ- TYPES W CONSTRUCTION CONTRACTS 15 ing the profit namely, the selling price, which is the amount billed. Time and Material Contracts. In time and material contracts, the whole cost is determined by official estimate, but neither the owner nor the contractor are obligated thereunder to any fixed amount. When this type of contract is signed, a memorandum should be made giving the contract a number for filing purposes, and an account should be opened in the Customers' Ledger to receive the billing as the work progresses. The operation of such a contract is governed by billing the owner for the cost of the direct expense, labor, and material incurred in the work each month, computed on a weekly basis, plus the cost of supervision and a certain agreed profit. Gross sales and gross profit accrue at the time the bill is rendered. In other words, profit can be determined on this type of contract each month as it accrues on each bill rendered. These bills are made from foremen's reports of material installed, labor payrolls, store room charges, and miscellaneous expense vouchers. When a bill is completed, it is charged to Owner's account and credited to Earned Contract Sales account. The owner is expected to remit payment covering such bill within a reasonable time after its receipt. Infrequently, an owner may withhold temporarily a certain percentage of each bill but as a rule each bill is paid in full. Under this type of contract, also, work in excess of the forecasted original estimate is usually covered by extra orders. It should be noticed that the original estimate of the cost of the work, plus the cost of extra orders relative thereto, is not posted to the account with the owner. The owner, as indicated above, is charged only with the amounts of the bills rendered to him for work performed. However, it is good practice, in order to control the con- tractor's liability in connection with work under way, to insert a memo entry in the Owner's account, the estimated 16 PRACTICAL ACCOUNTING FOR GENERAL CONTRACTORS original value of the work to be performed, plus the amounts of any extra work orders. This will permit, at any time, the measuring of the amount of cost required to finish each specific contract, or the determining of the value of the unfinished cost thereof. The value of the unfinished contract is arrived at as follows : From the value of the original estimate as shown in the memo entry in the Owner's account, plus the values of all extra orders (likewise set out in a series of memo entries) deduct the amount of the total bills rendered the owner as shown by actual charges in his account. This remainder, less the amount of the approximated profit and supervision charge, gives the unfinished cost of the job; it is a contract liability. Under the lump sum or set price contract, the rule is similar in determining the approximate value of the unfinished cost obligation to finish, except that here the total contract price plus the price of extra orders, as taken directly from the Owner's account, is a real charge to be liquidated by cost. This total is reduced by the 10 per cent estimated profit, and the remainder is reduced by the cost to date. The result is the approximate value of the unfinished cost obligation to finish. Time and material contracts may embody sub-con- tractors' activity. If so, it is a good plan to incorporate their cost in the regular contract to the extent of their regular monthly requisition. Each such requisition should be treated in a manner similar to that of an invoice for material received from a vendor. If the value of the entire sub-contract is named, it should be set up on the books as a charge to Deferred contract Cost and as a credit to Con- tract Liability. Each sub-contractor's monthly requisi- tion then may be treated as a journal transfer, charging Contract Liability account and crediting Deferred Contract Cost. The number of the requisition, or invoice, is indicated in the journal entry. After the above journal entry is made, the requisition is treated like a regular TYPES OF CONSTRUCTION CONTRACTS 17 invoice, being analyzed and posted as a debit to Accrued Contract Cost and as a credit to Accounts Payable. This method of handling pre\ ents the real accrued cost of sub- contract work from becoming inextricably confused in a maze of accounts payable records. The large contracting companies, such as the Thompson- Starrett Co., George A. Fuller Co., and others, beyond a doubt, keep an auxiliary ledger in which are recorded all sub-contracts. Deferred Contract Charges account is de- bited and Deferred Accounts Payable (or Sub-Contract Liability) account is credited. When the monthly requisi- tions come through, as above explained, these accounts are proportionately cleared. Eventually, both these general accounts are absorbed and wiped out by the periodic transfer of a proportionate amount of accured current cost and liquidation responsibility. This method of control is to be recommended, as it segregates in its entirety each contract taken, with its accompanying extra orders. Fee Contracts. During the war, fee contracts were much in use in Government work. This class of contract is an agreement whereby the owner finances the project. He liquidates all the invoices from vendors for material used in construction, reimburses for all the payrolls, appoints and pays the field office force, and, in fact, assumes all the liability incurred by the contractor. The fee is based on a contract price, which is tentative in its aspect, for the reason that a fee penalty may be exacted for an excess cost on the price estimate, while a premium may be given for a reduction in the cost on com- pletion. In addition to the original estimate of cost on which the fee is based, supplemental work orders, may be issued as before, to the general contractor after approval. For each extra work order issued, the contractor secures an additional fee, equal to the amount that the extra order bears to the original official estimate. This additional fee is calculated upon a percentage basis; the original fee 18 PRACTICAL ACCOUNTING FOR GENERAL CONTRACTORS multiplied by this percentage gives the amount of the fee on the extra work. The contractor, also, is allowed a stipulated amount for plant rental, to reimburse him for wear and tear on any machinery he may supply and which is essential to the construction under the conditions of the contract. This compensation is for rental only. Expense upkeep is not to be included, since this he himself must pay. The rental paid is assumed to be adequate to insure compensa- tion for any unforeseen contingencies such as a break- down to which his plant may be subjected. Fuel and labor operation costs are assumed by the owner but plant items, such as tools, etc., are supposed to be paid for by the contractor. If, through error or fraud, some of these items have been charged to cost of construction, and adjust- ment thereof must be made, this is done by the issuance of a Collection Bill against the contractor. If the con- tractor does not pay this the amount is deducted from the final payment of fee or plant rental due him. Sub-contract work may arise in connection with fee contracts. Ten or more sub-contractors may be involved, each one representing a different feature of construction. Each sub-contractor works under a special contract which may or may not be similar to the contract under which another sub-contractor works. One may be on the basis of a lump sum, another on the fee and plant rental basis, another on the unit price basis, etc. In a sub-contract for a lump sum, the sub-contractor makes his claim for payment by requisition. He supplies everything in the way of labor and material, these two items representing the costs which support his claim for payment. In a sub-contract on the basis of fee and plant rental, all material and labor is paid for by the owner. These material and labor costs, plus the fee and plant rental charge, become the basis of the actual cost of the official estimate to complete. Such cost may be either over or under the official estimate. TYPES OF CONSTRUCTION CONTRACTS 19 Unit Price Contracts. A unit price contract is operated against an estimated cost to complete, based on the number of units required, at an agreed price per unit. At comple- tion it may show either an over-run or under-run in relation to the cost estimated. The owner is billed at different periods for the value of the units installed, such bill usually being subject to a reserve which is held back to the amount of 10 or 15 per cent, which reserve is collectible by the contractor in his final billing for the work performed. This is a desirable form of contract if the agreed price per unit is based on a fair return. An attempt should be made to keep the overhead within the amount of the difference between cost and the price agreed upon in order that the contract may be productive of a fair net profit. In a contract based on unit price, the contractor supplies the labor and material, periodically billing at the unit price agreed upon for the portion of the work completed, less a 10 per cent reduction temporarily held until the final bill is rendered. In certain instances, 80 per cent of the work under a contract may be performed by sub-contractors. To keep adequate records of the sub-contracts, a card ledger proves valuable, that is, a card account should be opened for each sub-contractor, the opening entry being dependent upon the agreement under which the sub-contractor works. Jobbing work is auxiliary to regular contracting but may develop to large proportions in some cases to $50,000 or more a month. It involves, at times, the recording of five or six hundred customers' bills each month. Since an indi- vidual internal account must be incorporated in the books of account, to which is posted the cost and income of each job, to conduct this branch of the business properly involves attention to much detail. In assigning a job contract, notices are made out in duplicate each bearing the number of the job. The original is forwarded to the foreman who is to superintend the work. He, in turn, sends in vouchers, consisting of 20 PRACTICAL ACCOUNTING FOR GENERAL CONTRACTORS approved bills from vendors, and store-room orders for material consumed in the work, as well as payrolls covering the work, all of which bear the job notice number. The vouchers are billed to the customer at a good profit to the contractor, and are charged to the correct account in the Accounts Receivable Ledger, and credited to Jobbing Sales. All bills to customers are made out in duplicate. The original is forwarded to the customer and the duplicate is placed on an arch file as a posting medium for use in the accounting department. CHAPTER III COST PLUS CONTRACTS Nature of Contract. This class of contract was fre- quently employed between the U. S. Government and con- tractors during the war and is increasingly being used today under certain safeguards and limitations to be explained later. The contract is given and taken on the basis of a certain percentage which the owner must pay to the con- tractor on the actual cost of the construction involved. The cost is measured by a statement of expenditures with vouchers attached to show the contractor's disbursements. The total disbursements, plus the percentage as agreed, is the amount of reimbursement to be paid by the owner and such percentage is the contractor's profit for the perfor- mance of the work. In a contract of this kind it is customary to have a "Field Force" supplied by the contractor to take care of the accounting, subject to the approval of the owner's representative who is on the job in the latter's interest. The compensation of the field force is included in the cost and is paid for by the owner, but only to the extent of the actual amount paid the employees; that is, the compensa- tion bears no premium in the way of a percentage that would accrue to the profit of the contractor, as is the case with the cost of field labor and the material entering into the actual work of construction. It is the correct procedure to handle the accounting records entirely in the field, in order to keep the detail bookkeeping work clear of the contractor's permanent business. Methods of Financing. If the owner finances the under- taking, the original amount advanced should be recorded as a credit to him, and, debited to the cash of the disbursing agent, who acts as agent for the owner. The owner deposits 21 22 PRACTICAL ACCOUNTING FOR GENERAL CONTRACTORS this advance to the credit of the disbursing agent in a bank adjacent to the location of the job, and his agent signs all checks drawn against this fund to liquidate vouchers when approved by the contractor. As before stated, the dis- bursement for vouchers, plus the percentage on cost for contractor's profit, is the amount to be collected from the owner; the owner's check for this amount is drawn to the order of the disbursing agent who debits Cash and credits Owner when he deposits it. The agent then draws a check to the order of the contractor for the amount of the per- centage included in the reimbursement. This operation reduces the agent's cash to the original amount of the fund. The owner's account of credit for all cash received, less the fund amount, will then equal the total cost to date of the contract so far as actual disbursements are concerned, and exclusive of "costs in," which may be unpaid. Such a fund is an imprest fund in its nature and is only charged and credited to the extent that it may be increased or decreased from the original amount advanced. On the completion of the contract when all costs have been paid and correspond- ingly reimbursed by the owner, the fund is closed out by the agent drawing a check to the order of the owner for its amount. If the contractor finances the undertaking, he merely debits the disbursing agent for the amount of the check and credits Cash on his general books, and the disbursing agent debits the bank (as the funds are deposited in his name) and credits the contractor for its amount. A statement of the amount disbursed by the disbursing agent for approved vouchers of the contractor, plus the per centage on cost, is then sent to the owner. The owner draws a check to the order of the contractor for the amount, which is sent to the contractor either directly or through the disbursing agent. The receipt of this check from the owner may be recorded on the books of the contractor in either one of two ways: If under the first method he keeps a record of the cost COST PLUS CONTRACTS 23 and income on his general books for the purpose of showing the volume of business performed, he should make the following entries, supposititious figures being given: Debit: Cash $110,000 Credit: Accounts Receivable $110,000 Cost of $100,000 + 10 per cent profit as per sheet received C. 402. Debit: Accounts Receivable $110,000 Credit: Earned Contract Sales $110,000 Cost and Profit on C. 402 as per reimburse- ment. Debit: Accrued Contract Cost $100,000 Credit: Disbursing Agent $100,000 Approved voucher of cost as paid by agent on C. 402. Debit: Disbursing Agent $100,000 Credit: Cash $100,000 Reimbursement to agent for vouchers liqui- dated C. 402. After these entries are made the books show a profit to the contractor of $10,000 equal to the percentage paid. Under the second method only two entries are required: Debit: Cash $110,000 Credit: Disbursing Agent $100,000 Profit on Sales $10,000 Debit: Disbursing Agent $100,000 Credit: Cash $100,000 By the latter method the only record or the contractors general books of a permanent nature is the amount of profit earned, and the field record of the disbursing agent only shows actual cost equal to $100,000, the percentage of $10,000 being ignored. The books of the owner, however show the total amount of the check for the construction cost as an investment. An estimate should be made by the disbursing agent and forwarded to the owner or person financing the cost of operation in advance of the time when payments are to be made, so that the agent may be provided with ample funds to meet payrolls, payments to vendors, 24 PRACTICAL ACCOUNTING FOR GENERAL CONTRACTORS or any recurring expenditures in connection with the cost of the work. Interest on Capital Investment. A debatable question is whether or not the contractor is entitled to interest from the owner should the contractor be the party who finances the work. It seems reasonable to argue that the owner should pay the interest on the face amount for the time in- volved on bank loans at least, as this is the burden the con- tractor has to assume, and is without question a part of the actual cost. It is as fair for one party as the other, for the reason that money is equally valuable on the basis of interest to both, and if the interest on such funds is to be used by another party without charge, the party so privileged gains what the other loses; therefore, if the contractor advances the funds he seems entitled to collect interest from the owner at bank rates for the time his capital is tied up. Illustration of Cost Plus Operation. The author knows of a contracting company which operates under this form of contract only, and finances every contract taken. The company advances the fund to be used to liquidate approved vouchers, and each advance is deposited in a separate bank account which is known by the number given to the contract. Each account so incorporated is drawn on by checks of a numbered series bearing the same number as the contract, thus distinguishing the cash record of receipts and disbursements for a specific contract. The fund, plus the reimbursements from the owner, when reduced by the withdrawals for payment of approved vouchers, and the amount of percentage due the contractor, leaves a balance which is the amount of the fund. The advantages of this system lie in the fact that it prevents any confusion of receipts or disbursements pertaining to the contract by a translocation of charges and credits. The check paid the contractor for the percentage, as drawn from these different funds, is entered on the Cash Record of his general books as a debit, and credited to Owner in the Customer Ledger. When such a payment is deposited COST PLUS CONTRACTS 25 in the bank controlling the general funds of the contractor, a journal entry is made as follows: Debit: Accounts Receivable "Owner" Credit : Profit on Contract For percentage on C. 402 as per check from 402 fund, No. 126. This record may be considered as the entry of the net sale or income from the contract. Material Supplied from Contractor's Stock. At times material for the contract is supplied from the contractor's own stock. In such an event, the contractor must bill the owner like an ordinary vendor on a cost basis and under the conditions of the percentage agreed upon in the contract. The question then arises, should the prices be at cost or market. If the latter price is higher, the contractor, in the opinion of the author, should charge the owner on that basis. In support of this contention suppose that the price paid by the contractor for the material is below market price at the time of sale to the owner, and that the contractor has had the material in stock for several months antedating the billing time to the owner; then if the market price is higher, and is the one taken, the difference between his cost and the market price, would compensate the con- tractor for interest on his investment in the inventory for the period between purchase and sale. On the other hand should the cost to the contractor have been higher than the market price, the former price should be taken. In the first instance mentioned above, the owner is being charged at market, which is all that would be expected by him; but in the latter case the contractor is entitled to some protection from loss and he therefore sells the material to the owner at cost. Pricing of Contractor's Materials. Any bills rendered to the owner for materials supplied from the contractors' stock on hand should not be credited to Sales account on the books of the general contractor, as the materials are 26 PRACTICAL ACCOUNTING FOR GENERAL CONTRACTORS supplied to the owner on a cost plus basis. It follows that the amount of the bill must be a direct credit to the contractor's stock on hand, the same as though it were materials issued on a store room order. Since book inven- tories are charged and credited at the cost prices, if the material is billed to the owner at another price than actual cost as carried on the inventory, the difference should be adjusted by a charge or credit to a temporary account which may be called " Inventory Price Fluctuations" the balance of which is closed each fiscal period into Profit and Loss. By this procedure the perpetual inventory effect of the stores record is not disturbed, for the reason that any charges or credits to the inventory account over or under the cost, are immediately equalized to show that the balance on hand is the true inventory at cost. As before stated, if market price is higher than cost, market is billed to the owner, and the inventory must be charged for the difference; should part of the amount billed be returned by the owner, it would be credited to him at the same price as billed, and charged back to inventory at its original cost, at which time "Inventory Price Fluctuations" would be charged with the difference between cost and market. For example, if the stock of the contractor is supplied to the owner at the market price, which, let us assume, is 10 per cent above inventory or cost price, the record on the books of the general contractor would require the following entries : Debit: Owner $220.00 Credit: Inventory $220.00 Cost of material 200 + 10 per cent Debit: Inventory $20.00 Credit : Inventory Price Fluctuations $20.00 To adjust the cost of materials sold to that of market prices. Suppose part of the material equal to 10 per cent of COS T PL US CON TRA CTS 27 the bill is returned by the owner. The entries on the contractor's books would be: Debit: Inventory 20.00 Inventory Price Fluctuations 2.00 Credit: Owner 22.00 Charge back at cost and profit adjustment for return of material billed to owner at market price for 10 per cent above cost. Effect of Rising Prices. In cost plus contracts the owner shoulders the burden of all contingencies and the contractor's only worry, is to avoid any irregularity of performance that would justify any claim against him resulting in a curtailment of the profits anticipated under the original agreement. Considerable advantages often accrue to the benefit of the contractor in a contract of this class especially when prices are rising: For example, suppose a contract is awarded on a cost, plus 5 per cent, basis and the official estimate of the cost to complete is $1,000,000, with a time limit of 2 years; assume that such conditions as those of the World War arise, soon after starting time, and that costs up to that time for labor, material and overhead have been in conformity with the estimate; likewise progress as shown by the report of the cost engineer by units and percentage has been in strict accordance with the expectations under the contract. If at this point, vendors commence to bill lumber at $45 per M feet which was estimated to cost $15 per M feet, if bricks are billed at $22 which were to cost $9 per M, if labor jumps to 50 per cent above that estimated, etc., what is the result? The estimate has to be revised to correspond to the increased costs. If the work is so important that it cannot be abandoned, and it is decided to finish at any cost, for the purpose of demonstration let us assume an increase in cost of 100 per cent and that the percentage to the contractor is 5 per cent. Therefore instead of getting 5 per cent on $1,000,000, the original estimate, he gets it on $2,000,000, which increases 28 PRACTICAL ACCOUNTING FOR GENERAL CONTRACTORS his profit to $100,000 instead of $50,000. The contractor does no more work, yet he is paid twice the compensation the owner thought to be ample under the original agreement. As it seems to the author, the contractor is paid a bonus of 100 per cent for the penalty inflicted on the owner, occasioned by increased prices over those submitted contingency unforseen at the time of allotting the contracct. Equitable Adjustment of Percentage Rate. To protect the o\vner against paying unfair compensation in excess of that to which the contractor is entitled, a proportion of the percentage should be reserved by the owner until a final payment is made. This could be done by the owner paying, say, three-fifths and reserving two-fifths of the rate during the process of construction. The amount of cost on which the contractor could collect the full rate might be arranged at 5 per cent above the cost estimated. This arrangement would be an upset limit to the profit of the contractor, and to make the contract attractive the owner could agree to pay, say, 25 per cent of the amount saved under the cost estimated. The incentive to the contractor under such a contract can be illustrated by the following figures : 1. The contract is allotted at an estimate cost of 2,000,000 The cost at finish is 1,900,000 The saving to the estimate is $100,000 The percentage to the contractor is. . . 1,900,000 X 05 = 95,000 The bonus for saving is 100,000X25= 25,000 Total profit paid to contractor $120,000 2. The contract is allotted at an estimated cost of $2,000,- 000, but results in a cost of $2,200,000. As the upset limit of cost which is subject to the 5 per cent profit is $2,000,000 X 105 = $2,100,000, the profit paid to the contractor is $2,100,000 X .05 = $105,000. Thus, when we compare the two results there would be a gain to the contractor of $120,000 - $105,000 = $15,000, if there is a saving to COST PLUS CONTRACTS 29 the owner under the estimate instead of an increase of cost over the limit agreed, equal in both instances to $100,000. When a contract is let under the above condition, the saving to the owner should be the paramount object with the contractor, as the most he can collect is 5 per cent on the 5 per cent excess cost, as estimated, in addition to 5 per cent on the estimated cost. Whereas under the offer of a bonus of 25 per cent of any saving on the estimated cost, he gets an increased profit in the proportion that 5 is to 25, or equal to five times the percentage agreed upon. If the saving is $200,000 the contractor gets $200,000 X 25 = $50,000, or a bonus of 25 per cent. Anticipated earning at 5 per cent 2,000,000 X .05 = $100,000 Actual earning at 5 per cent 1,800,000 X .05 = 90,000 90,000 Percentage on cost Realized percentage and bonus $140,000 Total Profit Unrealized percentage $ 10,000 Loss The above figures show that he loses 5 per cent and gains 25 per cent on $200,000, or $50,000 - $10,000 = $40,000 more than was expected. This answers the question, what is the incentive to save in the cost to the owner by performing at a cost under the estimate? Such a contract is similar to that of a fixed fee contract in so far as it is a protection against excess costs to the owner. In the operation of cost plus contracts the fund method previously referred to will be admitted to be the only prac- ticable plan when it is realized that the cost accounting is all done in the field, from duplicate records of which the original goes to the owner, in order that he may reimbures the contractor. The duplicate remains with the contractor and constitutes his field record. The fact should be noted that the fund would have to be higher at the peak of the work than in its early or later days; but it is easy to forecast 30 PRACTICAL ACCOUNTING FOR GENERAL CONTRACTORS expenditures for short periods, so that the fund may provide at least for current weekly reimbursements. The only account necessary on the books of the general contractor would be one with the disbursing agent for the original amount, plus any increase and minus any decrease of the fund and the credit to Accounts Receivable for the per- centage collected. All field stationery should be adapted for use only with each contract, that is, all purchase orders, invoices from vendors, store room orders, payrolls, vouchers, checks on bank, etc., should contain a complete series of numbers from one up to a final number, beginning and terminating with the start and completion of the work. CHAPTER IV THE FINANCIAL ACCOUNTS AND RECORDS The General Ledger. While the profit or loss on every job or contract is a matter of interest to the contractor the tiling of greatest moment to him is to know how his business stands as a whole. What, for instance, are the total profits earned to date ? What is the amount of accrued earnings, the accounts receivable and payable, and how does his business stand when the accounts are closed as compared with its condition at the end of the former fiscal period? The book which summarizes this information is the General Ledger. Therein are classified and grouped in condensed form the results of all business transactions. The postings to the General Ledger are taken from the footings of the detail entries in (1) the "General Ledger" column of the Cash Record, the ruling of which will be explained later and from (2) the General Journal the func- tion of which is at the end of each month to frame into a journal entry the control figures derived from auxiliary or subsidiary books for posting to the General ledger control accounts. Thus all the avenues of the accounting system finally lead to the General Ledger which contains the classified statement of all transactions summarized in the journals and subsidiary books under such heads as Cash, Accounts Receivable, Accounts Payable, Store Room, General Expense, Sales, Contract Cost, Jobbing Cost and so on. A list of the general ledger accounts with a descrip- tion of the method of their debit and credit will be given given in Chap. VIII. As the ruling of the General Ledger used in a contractor's business does not differ from the standard ruling, this record requires no illustration. 31 32 PRACTICAL ACCOUNTING FOR GENERAL CONTRACTORS General Journal. Entries on the General Journal are taken from auxiliary records and are compiled on a simple journal voucher form ruled as follows: Account of Auxiliary Debit Credit The General Journal is a bound book ruled with 12 Amount columns in debit and credit sets all on both pages. It is margined for the date of the entry, record of the journal voucher number, and the explanation space wherein are entered the names of the accounts to be debited and credited. The distribution of the amounts to be debited and credited is made to the remaining 12 distribution columns each of which is ruled to show either debit or credit entries and the headings of which are as follows: 1. General Ledger 2. Accounts Payable 3. Accounts Receivable 4. Accrued Contract Cost 5. Contract Sales 6. Jobbing Cost 7. Jobbing Sales 8. Interest and Discount 9. Store Room 10. General Expense 11. Advances 12. Sundries COST PLUS CONTRACTS 33 The form follows : For the clear understanding of the ex- planatory matter to follow it will be of assistance to make a rough sketch of the journal columns entering the number and heading in each case. In the General Journal is kept a record of the control amounts assembled in (1) the Figure Analysis Book (to be describ- ed in the following chapter), (2) the control columns of the Cash Record, and (3) such other items of charge and credit as cannot properly be incorporated among the entries in the two above named books. The footings of the journal columns 2 to 12 inclusive (as numbered above) and the detail of Column I, supplemented by the totals of columns 4 and 13 of the Cash Record, constitute all the entries made in the General Ledger each month. The method of operation of this book can best be demonstrated by presenting below a number of journal entries, giving the number of the debit column on the left hand side and the number of the offsetting credit column on the right hand side. The first entry constitutes the journali- zation of the total cash disbursements for the month which are covered by the entry in the explanatory column of " Sundries to Sundries" and the distribution of the total disbursements to the columns enu- merated below: ! j 1 .^ 1 < < | lli II; 1 1 m 1 l< r> ; z! . c (0 ' 1 O X "* ( !* fci i o'^ " * < J | ll< peg " Ml : tz c 1 *\ * . : ; 1 s ' - 3 t B fa . 1 &t M ly . "i M 3 ^ ' | 5 3 4 . 34 PRACTICAL ACCOUNTING FOR GENERAL CONTRACTORS Sundries To Sundries Debit Col. Debit: Credit: 1 Cash Receipts Cash Disbursements with total 8 Interest and Discount 1 General Ledger 11 Advances 1 Payroll and Expenses 2 Accounts Payable 3 Accounts Receivable The remaining entries are all taken from the footings of the Figure Analysis Book and the study of these entries in combination with the explanation of this book in the following chapter will make clear the method of compiling the controlling figures posted to the General Ledger. Debit Col. Credit Col. 3 Accounts Receivable To Contract Sales 5 Jobbing Sales 7 4 Accrued Contract Cost To Store Room 9 10 General Expense To Accounts Payable 2 6 Accrued Jobbing Cost 4 Accrued Contract Cost To Accounts Payable 2 11 Advances To Cash 1 1 Advance Contract Cost To Accounts Payable 2 4 Accrued Contract Cost To Advance Contract Cost . . . . - 1 1 Notes Receivable To Accounts Receivable 3 2 Accounts Payable To Notes Payable 1 1 Notes Receivable Discounted To Notes Receivable 1 10 General Expense To Advances 11 Footings are carried forward to the end of each month, THE FINANCIAL ACCOUNTS AND RECORDS 35 only. The totals of the debit and credit in Columns 2 to 12, when added to the debit and credit of Column 1, should equal. Auxiliary Records. The auxiliary records in which the detailed figures are assembled for the purpose of furnishing the control figures for entry in the general journal prepara- tory to posting to the general ledger consist of the following books and records: 1. Figure Analysis Book 6. Jobbing Work Ledger (Cost 2. Cash Record and Income) 3. Accounts Receivable Ledger 7. Analysis of General Expense 4. Accounts Payable Ledger 8. Deferred Charges Record 5. Cumulative Contract Ledger 9. Store Room Ledger (Cost and Income) Of the above records and the keystone of the subsidiary arch, as it were, is the Figure Analysis Book. This record is divided into sections to classify the transactions recorded on vendors's invoices, foremen's expense reports, payroll summaries, store room orders and other original papers. After the classification of original transactions in the Figure Analysis Book, the figures for the monthly or other cost period are posted in classified detail in the other auxiliary records (with the exception of the Cash Record) and in total to the proper General Ledger account. Thus the Figure Analysis book, while it compiles the control figures, at the same time furnishes the original record of the internal distribution of expenditures and assembles the totals of the various items to be charged to the accounts receivable and sales accounts in detail and in total to the Accounts Receiv- able and Sales controlling accounts on the General Ledger. The Cash Record. In the control columns of the Cash Record are entered the duplicate amounts of every receipt and disbursement by check thus furnishing the contra- control figures for cash receipts and disbursements. The two pages of the record are ruled with 17 columns in all, four of which, in the center of the two pages, are devoted to the usual explanatory details of date, payor or payee, 36 PRACTICAL ACCOUNTING FOR GENERAL CONTRACTORS check ( i/ ) mark, and disbursement check number. The ruling is illustrated of this and the facing page, and the headings are numbered consecutively as a convenience for reference in the discussion to follow. CASH RECORD. MONTH OF 19 Credit Debit Payer Date and Accta. Rec. Accta. Pay. Advances Gen. Led. Int. & Disct. Receipts Payee 9 10 ia 14 15 1(1 17 IS 20 Credit Debit Bank Ck. No. Dis- burse- ments Int. & Disct. Gen. Led. Ad- vances Payroll & Expense Accts. Pay. Accts. Rec. De- posits With- drawals Bal- ance One set for ~v %--W%/^-'"* .^V^^V^^^X. 'N^V^^^^'V. s~^r**^**^~> *^^*S^S^ -w^^w^^^. ~^^^^V^S^>w~v. ^-*^^"\^^^-\. ~-^"^^V^-' x-^^^^-w^^- s-**~^>^S*~S^~, each -v^^w^*-^ bank '^^^^'N^Nw-^N. :ccc; FORM 1. Cash Book Ruling. At the end of the month the total of the auxiliary columns 1 to 4 on the debit side, as numbered over the heading, are posted to the credit of the control account named therein, with the exception of the column headed General Ledger. Similarly the footings of the Columns 13 to 17 are posted to the debit of the proper control accounts. As all the detail entries in the control columns have been posted to some auxiliary record at the time of entry it is obvious that each footing of a control column is also the footing of an auxiliary record. Use of Columns. Though the purpose of the columns of the Cash Record will be clear to the reader with a knowledge of the principles of double-entry bookkeeping and the use THE FINANCIAL ACCOUNTS AND 'RECORDS 37 of control accounts, for the sake of completeness the use in each case is enumerated below: Column 1. For gross amount collected from customer equal to 5 and 6. 2. For checks returned and re-deposited or payments for debit balances received from vendors or refunds of over-payments. 3. For cash returned heretofore charged to this account. 4. For any item of cash gross or net affecting other accounts than 1, 2 and 3. 5. For any deductions of this nature reducing entries to Columns 1, 2, 3, and 4 to 6. 6. For balances of all banks, minus outstanding checks as per cash book at the end of the previous month, and the actual cash received during the current month. Columns 1, 2, 3, 4 totals plus the balance beginning, will equal the totals of columns 5 and 6. 7. For date of receipt or disbursement. 8. For showing, from whom received and to whom paid. 9. For ticking postings both debit and credit. 10. For check number and bank symbol. 11. For amount of check drawn. 12. For any deductions of this nature reducing entries to Columns 13, 14, 15, 16 and 17 to 11. 13. For any items of cash, gross or net affecting other accounts than 14, 15, 16 and 17. 14. For cash advanced for traveling, foremen's funds, loans, personal, etc. 15. For clearing account for checks reimbursing foremen and in favor of the local paymaster. 16. For gross amount charged to creditors equal to 11 and 12. 17. For refunds of overpayments or payment of credit balances on this account or checks returned which have been heretofore deposited and their value taken up by check to bank. If it is desired to show the daily bank balance the three following additional columns are required : 18. For entry of the balance of each bank (if there are more than one) minus outstanding checks as per Cash Book at the end of the preceding month, and the amount of each deposit made during the current month. 38 PRACTICAL ACCOUNTING FOR GENERAL CONTRACTORS 19. For checks drawn on each bank during the current month. 20. For the balance as shown by the bank each day, which is the difference between the totals of Columns 18 and 19. The balance as shown in Column 20, added to the total of Column 11, should equal the total of Column 6. Method of Proving Balances. To close the record at the end of the month the bank balance in Column 20 is entered in Column 11. Columns 6 and 11 should then be equal and should be ruled off. The totals of 6 and 11 are brought down below this ruling, and the beginning balance in Column 6 is deducted from the total of Column 6 brought down, the reduced amount is the cash receipt or cash debit for the month. On the line below is entered the footing of Column 11 at the end of the month and this amount represents the cash disbursement or credit. Column 5 is then closed into 6 and these amounts when added should equal the totals of Columns 1 to 4 collectively. After this is done Column 12 should be closed into 11 and the totals of these two amounts should equal the total of 13 to 17 collectively. A journal entry of these control fig- ures may be made in the General Journal or, as is common- ly done, the entries may be posted direct to the General Ledger. The writer prefers the entries to be passed through the journal so that this book constitutes a complete record of all General Ledger postings. The check numbers should be governed by an alphabeti- cal symbol designating the bank drawn on, and should appear as a prefix to the check number entered in the cash Record. By making this provision, the checks can be properly assigned to their respective bank sections. Cumulative Contract Ledger. The Cumulative Contract Ledger is a loose-leaf record in which one page is allotted to each contract for the purpose of collecting the cumulative monthly charges and credits. The totals of these monthly charges and credits furnish the control figures for Accounts Receivable, Unearned Contract Sales and Earned Contract Sales. The ruling of the book is illustrated in Form 2. THE FINANCIAL ACCOUNTS AND RECORDS 39 The study of the form shows that the total debits are divided into expense, labor, and material, and that material is subdivided into the cost of that installed and of that delivered and waiting to be installed. In the column headed "Credit Total Contract and Extras" is entered the original contract price, plus orders for extra work on all Lump Sum Contracts. Between the debit and credit sections there are two columns for memorandum entries of the proportion of the contract earned and the total yet unearned. The proportion earned and subject to requisition is determined by adding 10 per cent or any other appropriate percentage for profit to the cost of the material already installed plus labor and expense. In the study of the figures it should be noted that the totals of the Earned and Un- earned Sales columns are equal to the total contract price plus extra orders and that the "Monthly Balance" repre- sents the difference between the "Total Cost and the "Total Contract and Extras." All entries which are deductions are entered in red ink and are shown in the illustration in bold faced type. When the work is com- pleted and the cost is all in, the balance in the "Earned Sales" column is adjusted to equal the total contract price and the cost of the extra orders. The actual cost deducted from this total represents the gross profit earned. The 10 per cent addition to cost to get the earned sales accruing each month, is merely a memorandum figure to measure the monthly sales; therefore the figures shown in the "Estimated Profit" column are not to be journalized as they have no contra effect. They are merely put on the Cumulative Contract Ledger to show the value at which the sales have been taken. The following summary explains the nature of the entries in condensed form: 40 PRACTICAL ACCOUNTING FOR GENERAL CONTRACTORS Expense $972 Labor 28,550 Materials Installed 51,610 Materials Inventory 1,552 Toted Charges 82,684 Control Debit $82,684 Less Inventory 1,552 Accrued Cost 81,132 Profit 10% 8,113.20 Earned Sales 89,245 . 20 Unearned Sales 12,072. 80 Total Contract and Extras $101,318 . 00 Control Credit 101,318 Control Balance Credit: $18,634 Control Figures. The control figures furnished at the end Of each month form an important feature of the Cumula- tive Contract Ledger. As previously explained when a lump-sum contract is taken (and in this discussion all contracts are assumed to be of a lump sum nature unless otherwise stated), a memorandum entry is made charging the owner on the Accounts Receivable Ledger and crediting Unearned Contract Sales at the agreed price. These entries, it should be noted, are of a memorandum nature. At the end of the month an "Analysis of Sales" is drawn up in the Figure Analysis Book and the total of all charges for contracts of all classes which have been billed, is by journal entry charged to Accounts Receivable and credited to Unearned Contract Sales on the General Ledger. At the end of the month this last account thus shows both the Earned and Unearned Contract Sales. After entering the monthly memorandum of cost plus 10 per cent on the Cumulative Contract Ledger to all contracts of a lump sum nature, these figures are consolidated w r ith the figures shown in the column headed Earned Contract Sales, thereby arriving at the total sales earned for the month. This amount is charged by journal entry to Unearned Contract THE FINANCIAL ACCOUNTS AND RECORDS 41 Sales and credited to Earned Contract Sales, the former account now showing the balance of the work unearned on contracts, which is an advance charge to Accounts Receivable. This amount deducted from the total of the schedule of accounts due from customers, gives the amount of the sales due and accrued to date, while the Earned Contract Sales account shows the earned sales credited to contracts of all classes for the month. All classes of contract other than lump sum are handled by billing the owner for the "cost in" plus the profit agreed upon under the contract. The total billed each month is debited to the owner's account on the Accounts Receivable Ledger and credited in the Cumulative Contract Ledger to the column for Earned Contract Sales. The remaining columns are ruled to show the detail required for the par- ticular kind of contract. The Cumulative' Contract Ledger is a practical and con- venient record and its self-proving arrangement of totals while it insures accuracy at the same time furnishes a condensed exhibit of the history of each contract both as to cost and income. It is usually operated in two books, the current ledger containing live accounts and the transfer ledger inactive or dead accounts. How inventories and profits are determined at the end of each month on the cumulative Contract Ledger resulting in Earned Sales for the month. See Form 2. The material cost, laid and in inventory, as shown each month on the cumulative contract ledger, is determined in the following manner: The total charges to the contract for materials each month is taken from the Figure Analysis Book. These totals are then listed according to each contract. The amount laid or installed as reported by the foreman in charge of each contract, is then placed alongside these total charges, and the difference is either an increase, or decrease of the inventory for the first or starting month. According to the exhibit below, the total charge for 42 PRACTICAL ACCOUNTING FOR GENERAL CONTRACTORS P;H o r 1 g bs a^ W Q o <; H K A d "- 1 S5 3 5 I O O (N 1 CO -H 100,513 J 1 (1 1 a o a S $99,230.00 1,470.00 97,755.00 3,917.00 93.837.50 9,100.00 ss IN id x en rf oo" 00 75,687.40 12,366.00 63,320.90 a CO 8 88 8 S 8 S2 gs 2 1 O iO t^ CS to oo CO OS CN" co CO M to os" CM t^ 00 US O US Cs" cs oi to us s~2 jr. Estimated Profit 6? *> | .3 J 8 d 88 o id IN CO S8 t^ d US 00 ^ to' 5S 2,243.60 1,137,50 8 i CO 8 88 88 88 88 88 8 IIS 8 88 ^* CO S IN t^ CO il US CO IN O CM oo us 00 I~. CO US C: Q EH W "*" N * t^ oo" U3 O N 2 s h 8 8 88 8.8 88 8 8 -2 g 8 8S 6 tf5 O i^ o IN e us O q os IN e us o OS 00 %>. B 8 88 88 88 88 88 8 S o * 3 el 1 o O >O d d us O ". . t~ IN o a oo" us US N 2 oo" 8 g ' 8 88 88 88 88 88 8 s eg '5 | o us IN 8 IN V o o us p to o IN" CO |8 us ci d o" L- O oo" co Q US & 8 88 88 88 88 88 8 7 x c fj] Q) a S 1 US IN eo U5 O t^ u5 CO S S to us 00 h- iH f Contract -11 2 3 S ^I' S 2 2 2 OS 2 OS OS OS OS ' 05 OS O a o January Total February .... || "3 o s 3 Q . "08 o 1 j 43 8 S? i 8 6 CO CN C 40,263.00 8 t^ CO CN 23,090.00 18,634.00 8 88 i 88 88 88 8 i CO O 00 N 8 CO M * O O5 ~* 8 ** o d! o 8 O 00 CO o 2g CN *i 0> "C H = S : S CN C< 00 cs * C4 n ss * t^ t^ (- 00 t 28 t^ * 88 CM" i - ic r- 00 tH ^< H i- a 8 28 8S g 2 8 s o (N OS 2 *** rt Tf CO CN CM O5 1C ,-c 00 00 ic t^ V co r- So co 1-1 O5 "2 i O 1C * IN t, O) i b- ic h- 1< CN -H 1C 2 S 10 1C Tl X 8 13 JS 8 28 8S 8 00 i-i 8S *i S h- s fe !-<_ CO V 1C t- h- i ^ . V rt OJ CO O5 O5 t^ 1-1 ic i-T 00 CO 00 1C CN TJI t>r CO 00 00 00 CN t^ 0> o> s 2 0> 2 05 05 O5 C5 C5 as Ob . Forward. . _x "3 - Total August Total September. . . Total October Total November. . . Total December. . . . "3 o E- 44 PRACTICAL ACCOUNTING FOR GENERAL CONTRACTORS material was $1000 for January, which was the month oper- ations on the contract were started, and $300 was the value of the material laid. The difference of $700 is the inventory starting the second month above referred to. In the fol- lowing month, the amount laid, if under the charges for the month, increases the inventory of the first month by the amount of the difference, and if over, decreases it. This segregation of the cost, makes possible the rendering of a true requisition for the actual value installed, and shows at the finish of the contract, the amount to be either returned to the store room of the contractor, or salvaged; this value is a credit to the materials charged, thus reducing the book cost to the actual cost. The 10 per cent added for profit is taken on the total costs, less the amount of inventory increases or plus the amount of inventory decrease as shown by black or red figure entries made to the inventory section of the account. In October the charge for materials is $10,400 and the report of materials laid which was received from the foreman, showed a value of $11,700. The difference is therefore $1,300 which is a credit to the inventory of $2,752 for September, reducing it to $1,452. The net total cost is $62 + $3,200 + $11,700 - $1,300 = $13,662. The "cost in" for the month is $13,662 + $1,300 = $14,962, and this latter amount is increased by a charge for profit of 10 per cent, or $14,962 + $1,496.20 = $16,458.20, which is the earned sales for the month of October. It will be noted that all earned sales reduce the original contract price by the actual earnings minus extra orders and plus any deductions. This leaves the same balance as the difference between the original contract price plus extra orders and minus any deductions, reduced by the actual Earned Sales. The totals at the end of each month, will show the condition of the contract as follows: The total cost, plus the profit reduced by the inventory will equal the Earned Sales, viz. $82,684 + $8,113.20 = $90,- 797.20, $90,797.20 - $1,552 = $89,245.20. This latter THE FINANCIAL ACCOUNTS AND RECORDS 45 amount, plus the Unearned Sales, or $89,245.20 + $12,072.- 80 = $101,318, the value of the total contract Sales. The reason for going into the effect of the entries made to this ledger, is to show how condensed they are, and also to make clear what at first glance may seem complex, when as a fact, it is almost automatic in its simplicity. MONTHLY ENTRIES TO CUMULATIVE CONTRACT LEDGER Month Material Charges Inventory Balance Total Cost Laid Debit Increase Credit Decrease Jan 1,000 700 2,300 5,050 6,402 7,400 1,720 3,700 9,600 10,400 1,590 3,300 300 850 1,600 5,250 5,500 8,200 2,220 3,200 8,000 11,700 2,290 2,500 700 700 902 500 1,600 800 150 200 800 500 1,300 700 700 550 1,250 1,050 1,952 1,152 652 1,152 2,752 1,452 752 1,552 Feb Mar Apr May June July Aug . Sept Oct Nov Dec Total . . . 53,162 51,610 1,552 Inventory Accounts Receivable Ledger. The Accounts Receivable Ledger (Form 3) is a loose-leaf record with three amount columns, two for debits and the third for the credit entry of cash paid. The first column is for the entry of the "Unearned Sales" which comprise the value of the original contract, plus any extra order work. Any deductions to negative these items are entered in red figures. The amount in this column when reduced by the estimated profit, is the unfinished cost to complete. The second column of the debits is to receive the Earned Sales, which is the cost for the month, plus 10 per cent as entered on the Cumulative 46 PRACTICAL ACCOUNTING FOR GENERAL CONTRACTORS Lump Sum Contract PENNA. RAILROAD Co. CHICAGO, ILL. JOB PENNA. R. R. STA. Retention 10% Accounts Receiv- able Record No. 1007 State, Symbol "I" Sal es Credi t Unearned Earned Date Paid Amount 1/31/19 Price $100000 00 1,540.00 $ 1 540 00 2/10/19 Cash $ 1 386 00 2/28/19 Extra Order # 1 120 00 Transfer 1,430.00 1 430 00 3/7/19 Cash 1,287 00 3/31/19 Extra Order # 2 70 00 Transfer 4,767.50 4,757.50 4/8/19 Cash 4,281 75 4/30/19 Extra Order #3 85 00 9,020 00 9 020 00 5/10/19 Cash 8 118 00 5/31/19 Extra Or er # 4 92 00 10,079.30 10,079 30 6/5/19 Cash 9,071 37 6/30/19 Extra Order # 5 146.00 Transfer 11,632.50 11,632.50 7/6/19 Cash 10,469.25 7/31/19 Extra Order # 6 300 00 7,370 00 7 370 00 8/4/19 Cash 6 633 00 8/31/19 Extra Order # 7 220 00 Transfer . . . 7,964.00 7,964 00 9/7/19 Cash 7 167 60 9/30/19 Extra Order f 8 92.00 Transfer 12,952.50 12,952.50 10/4/19 Cash 11,657 25 10/31/19 Extra Order # 9 110 00 Transfer 15,028.20 15,028 20 11/7/19 Cash 13 525 38 11/30/19 Extra Order #10 240 00 Transfer 4,247.10 4,247.10 12/5/19 Cash 3,822 39 12/31/19 Extra Order #11. 27 00 Transfer 4,931.30 4,931.30 1/6/20 Cash 4,438 17 10,365.60 90,952.40 C CO -H 1-H ^ -S c d d d d 10 >o IQ O ^O t^ I s * Gi d CN oco g (. o t OS i-H i 1 Tj* i i i i oT >,"! * M & fc Ifs 9 88 888888 8 8 o o d -^> do ddioddo d d d *3 ^ Q O i CNI> '^OCOC'^CN'* 1 00 CO (N^ lo Q r-* os r^ co i ~ < oo ii " O H tf ^^ ^ 5 H So o o o CO -u o o o o H o H O V 1 1 d d d d >o | l ^-^ | 1 8 8 CO 8 3 8 ^ ja j p f^t ^2 P 1 1 I 1 1 2 HH fcg 1 : : 1 1 . H !|: :1 : j j j *2 o3 o3 OQ .3 ^ ^_ * CO o O ^^ ^^ P -j ^ JJ:^^ HH^J O 1 ilJSj ^ I fi 1 Sundries CONTROL ' < a 1 1 ^ -8 1 1 i ! ill]] 1 1111 IliiJllft 1 1 I 1 I 1 o^O 03 ^^ ^ W PL, PH "3 -4-i J bC _g le 1 1'8'il Jf j'2 1 3 ' I i ggfl2o33Sig O 2J25-iW t *r'r)_aC_C O W O M C c3 u ^ "^ r^ V ""O Ci ' w Ct PPH) 40 15 25 32 24 29 000 000 000 000 625 550 112 310 54 3 000 000 175 000 gp al Lion l] Notes Payable, Manhattan ( First Nation) Miscellaneous 3o ,1 31 Total 479 175 Disbursements 31 31 15 20 31 Bills to be Liquidated 25 30 000 000 177 93 55 2 000 000 000 000 Payroll and Expenses Notes Payable, Manhattan ( First Nation! Miscellaneous )o U 31 Total 327 152 112 40 000 175 000 175 31 2 Bank Balance Bank Balance Bro't Down . Current Increase Current Decrease Approximate Business Previous Month Debit Credit Accrued Accrued General ' Net Profi Sales 175 10 000 000 200 185 15 000 000 000 Cost Exercise t Estimated FORM 12. Financial Forecast. 138 PRACTICAL ACCOUNTING FOR GENERAL CONTRACTORS M -2 K 0> to cop CCO op eo oo o o o a OJ* pj 28 o o 2 J5 C * V o ic o L* x O^ W CM = O) *4- J- * 8^0 - CO - 1 c>f n M T M s" O ~P * S i o 00 00 o coo o o C 5 *-O 5 CO i 00 t 8 ! i -H > a: o s CO t .~i*r 3C*>^ co'o" tst-T t * io" o 6 o 00 coo 1 H Si M .s 8.8 88 o'o o o o ^ o.P. 02 g 10 " s rt O * 2 8 9 1 8 CMC coo 8 < S "a t t d 1 1 r 9 t- o ^^ i O 00* t-T ,-^ *-^I-H' u^ c r o^ O CO t I-H S t>.co M o .3 ^ rl .- ! 5^ 1 i^ o ^ -i 88 i:j2 oo tp oo 88 8 8 ^ u 1.4 A g 88 08 O t C g g 2 g C O) S ii cot-^ oo co t^ CO CN i c^ t t NN 60 H P M OO oo o o C o o'o' o o *W o oo 1 00 00 -< E a] M ** J OQ :^ : : 1 1 _0 3 a '. eS :S : : o&:g : i; *^ . 1 J3 "2 3 c c 43 S o s 'S : "Z^^'O . o o Q o o -*J !<^ %Ji : "S 'S ^3 >> "S 13 1 : '. u o .cQ : 's 'i Comparative Balance S ASSETS CURRENT: Cash in Bank Funds: Foremen and Pet Accounts Receivable ' 'Cu Less: Unearned Sales. . Balance: Amount Due ar Notes Receivable Inventories: Store Room plies Unbilled Costs Deposit Account "Bids". Toto/ Current Assets . . . I.\T A'.S 7' JV/JSAT TS STOCP DEFERRED CHARGES T( Unfinished Contract Cost Sundry Advances, as per To/al Deferred Charge FIXED ASSETS: Plant Equipment Less: Reserve for Depn Furniture and Fixtures . . . Leas: Reserve for Depn Total Fixed Assets . . . TOTAL ASSETS... THE FI. \AXCIAL STATEMENTS 139 10 00 00 o 10 n cr co 4 i 00 o o t-ie d S i 0> 2 3 ~ n * n s s / x" * * V. Vf ,- o H - i s N tf } 00 8 8 88 8 I 8 II 1 co" * r- " f 00 s * m a o 8.8 38 c f: 1 n g 88 7 ~ a o a: - 3 8"8 CO'M" ; K, 05 2 S m M ABILITIES }< "\cndors" 'Bank Loans" o I ~. ABILITIES. ASSETS OV CO"" 9 mberSl, 1019 a: LI URRENT: Accounts Payab Notes Payable ' Accrued Taxes. Accrued Interest Sub-Contract Li TOTAL LI S3IJ, dO SS33X3 iiii -- / .- : a a fg-S'-g 5 Surplus, Decc 140 PRACTICAL ACCOUNTING FOR GENERAL CONTRACTORS Exhibit B L. K. COMSTOCK & Co., INC. NEW YORK Statement of Profit and Loss For Year Ending December 31, 1919 SALES: Income on Contracts Closed $1,285,190.00 Income on Contracts Open 913,577.53 TOTAL EARNED CONTRACT SALES. $2,198,767.83 COST: Expense, Labor and Material direct on Closed. $1,099,945.00 Expense, Labor and Material, direct on Open 828,946.42 TOTAL ACCRUED CONTRACT COST. 1,928,891.42 GROSS PROFIT ON CONTRACTS.. . . $269,867.11 Income on Jobbing Work Billed $ 80,280.00 Cost of Expense, Labor and Material direct on above 55,757.80 GROSS PROFIT ON JOBBING WORK. . 24,522.20 TOTAL GROSS PROFIT ON SALES. . $294,398.31 GENERAL EXPENSES: Engineering Expense $ 18,882.94 Selling Expense 31,340.28 Administrative Expense 67,210.77 TOTAL GENERAL EXPENSE $1 17,433.99 NET PROFIT FROM OPERA TIONS . $176,964.32 DEDUCT: OTHER INCOME AND EXPENSE: Interest and Discount Given $ 17,000.00 Less: Interest and Discount Taken 9,000.00 TOTAL NET DEDUCTIONS. . 8,000.00 NET PROFIT FOR YEAR 1919 $168,964.32 FORM 14. Profit and Loss Statement. THE FINANCIAL STATEMENTS 141 Exhibit C L. K. COMSTOCK & Co., INC. NEW YORK Statement of General Expense For the Year Ended December 31, 1919 Expense Classifi- cation Number Nature of Expense Amount Total Detail E 1 2 3 4 S 1 2 3 4 A I 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 ENGINEERING $ 18,882.94 31,340.28 67,210.77 $10,000.00 5,200.00 2,970.27 712.67 Salaries, Engineers Traveling Expense . . ... Supplies, Stationery, Ink, etc Tools SELLING $12,000.00 11,200.00 5,400.96 2,739.32 Salaries, Salesmen Commissions Traveling and Entertaining. . . . Advertising ADMINISTRATIVE $20,000.00 14,500.00 1,200.00 3,700.00 6,000.00 3,200.00 300.00 360.00 1,000.00 700.00 1,000.00 1,400.00 1,200.00 470.00 3,400.00 8,200.00 370.00 210.77 Officers Salaries Office Salaries Telephone and Telegraph . Stationery and Printing Rent Legal Towel Service Water Dues and Subscriptions Insurance Liability Reserve for Depreciation of Furni- ture and Fixtures Insurance Fire Postage Freight and Express Taxes State Taxes Federal Labor and Repairs Miscellaneous Total General Operating Expense. . . ADD: OTHER EXPENSES: NET INTEREST AND DIS- COUNT DEDUCTIONS. . . . TOTAL OVERHEAD EX- PENSE $117,433.99 8,000.00 $125,433.99 FORM 15. Statement of General Expense. 142 PRACTICAL ACCOUNTING FOR GENERAL CONTRACTORS L. K. COMSTO NEW Schedule of Profits Taken on Unfinished Contrac 1 2 3 4 Contract Number Name Location Direct Cost Debit Expense Labor Material 101 2 3 4 5 G 7 8 9 110 1 2 3 4 5 6 7 8 9 120 1 2 Hartford, Conn. Springfield, Mass. New York, N. Y. New York, N. Y. New York, N. Y. Bridgeport, Conn. New Haven, Conn. New York, N. Y. New York, N. Y. New York, N. Y. New York, N. Y. Philadelphia, Pa. Troy, N. Y. Chicago, 111. Buffalo, N. Y. Brooklyn, N. Y. New York. N. Y. New York. N. Y. Jersey City, N. J. Boston, Mass. Washington, D. C. Wheeling, W. Va. S 750.00 225.00 95.00 470.00 42.50 177.00 96.92 325.00 166.00 242.00 186.00 94.00 307.00 221.00 525.00 412.00 96.00 177.00 230.00 150.00 270.00 90.00 S 12,340.00 1,760.00 15,960.00 16,712.00 2,762.00 3,425.00 3,950.00 2.470.00 9,693.00 1,720.00 1,290.00 4,212.00 25,070.00 13,250.00 12,977.00 18,005.00 1,276.00 9,700.00 14,225.00 55,700.00 33,347.00 1,740.00 S 25,670.00 3,345.00 35,000.00 33,400.00 5,590.00 7,224.00 8,500.00 5,276.00 19,704.00 4,290.00 3,396.00 9,740.00 52,420.00 29,876.00 18,740.00 42,950.00 3,395.00 22.400.00 31,967.00 120,405.00 75,221.00 3,506.00 T Brown & Co Geo P Edwards & Son Wm. Goodwin & Co R Haskell & Bro International Shipping Corp. . . . Johnson & Fanning J. P. Moore & Co S J Nelson & Bro F. C. Peterson & Bro Silleck & Burton C. F. Collier Mfg. Co Geo. A. Fuller Co F. T. Ley Co Total. . . S5.347.42 S261. 584.00 S562.015.00 TOTAL SALES REQUISITIONED. TOTAL SALES BILLED.. . TOTAL EARNED SALES TOTAL DIRECT COST OF SALES GROSS PROFIT EARNED ON UNFINISHED CONTRACTS TO DATE. . FORECAST TO COMPLETE: ADD: Profit of 10 % on estimated cost to finish "Lump Sum" Contracts Profit of 12K % on estimated cost to finish "Time Material" Contracts. ESTIMATED: Total Sales To be billed on Time and Material Contracts Total Sales To be requisitioned on Lump Sum Contracts Total Sales To complete all contracts ESTIMATED TO COST: Lump Sum Contracts Time and Material Contracts TOTAL DIRECT COST PLUS: Overhead Estimated at 5 % on cost TOTAL COST... ES TIM A TED NET PROF I T . FORM 16. Schedule of Profits THE FINANCIAL STATEMENTS CK & Co., INC. YORK ts, December 31, 1919 and Forecast to Complete 143 Schedule 3 5678 9 10 11 Sales Credit Cash Collected on Account Estimated Cost to Finish Total Earned Unearned Lump Sum Time and Material Requisi- tioned Billed Lump Sum $ 38,760.(Xr 5,330.00 51,055.00 50,582.00 8,394.50 10,826.00 12,546.92 8,071.00 29.563.00 6,252.00 4,872.00 14,046.00 77,797.00 43,347.00 32,242.00 61,367.00 4,767.00 32,277.00 46,422.00 176,255.00 108,838.00 5,336.00 $ 42,636.00 56,160.50 55,640.20 9,233.95 11,908.60 8,878.10 32,519.30 5,359.20 15,450.60 85,576.70 35,466.20 67,503.70 35,504.70 51,064.20 193.880.50 119,721.80 $ 5,795.00 14,115.28 7,033.00 48,765.00 5,362.00 6,003.00 $ 107,364.00 143,839.50 19,359.80 90,766.05 60,316.40 31,121.90 142,480.70 49,860.80 69,549.40 814,423.30 114,533.80 183,456.30 114,495.30 498,935.80 26,119.50 30,278.20 $ 35,000.00 5,795.00 42,500.00 45,000.00 8,000.00 10,000.00 14,115.28 6,500.00 25,000.00 5,700.00 4,000.00 10,000.00 78,000.00 46,250.00 35,000.00 55,000.00 5,362.00 28,000.00 45,000.00 170,000.00 100,000.00 6,003.00 $ 97,603.63 130,763.18 17,599.81 82,514.59 54,832.18 28,292.63 129,527.70 45.328.00 63,226.72 740,384.81 104,122.63 166,778.45 104,086.63 453,578.00 23,745.19 27,525.63 $ 50,000.00 100,000.00 42,000.00 150,000.00 35,000.00 150,000.00 $2,496,900.75 $780,225.28 $2,269,909.78 226,990.97 $ 527,000.00 65,875.00 $826,504.25 87,073.28 $913,577.53 828,946.42 $ 84,631.11 $ 592,875.00 2,496,900.75 $2,269,909.78 527,000.00 $3,089,775.75 2,936,755.26 $2,796,909.78 139,845.48 $ 153.020.49 Taken on Unfinished Contracts. 144 PRACTICAL ACCOUNTING FOR GENERAL CONTRACTORS o O S o w 8 88888 888888 8 S I d oi ci TJ -j> ci d d d d d 00 IS CO X CO O O O O -- ~ '*? * ^ 8 888888888888 8 00 i 2 CO s 5 eS2co2ao^w22 I MS 8 3 S o 1 I 1 M t- 00 CO t: U ^ Q 8 888888888888 8 8 8 "a 1 islilllllill s d 1 3 CO NCOTfiTfN lOWOtO'-'C^ 1 h- i 6* _ 8 888888888888 s 8 8 .b ^ "5 OOO'OOffl'J'OOOOO | o IN 8 "O M w r- - 00 ei 5 g -*j c Location 1 lq IM ACTS CLOSED VARIOUS rt? WO/C MJ a ' O o. . ^ 8 S > S<5 O Schedule of 1 '. y ' 6 ;o^ 'o^S ' Sidfi^^ijilil JJj g a^" ? Mfc'sla cr cosr AATD JA^ 5S PROFIT ON COi 7 COST AND INCC IS PROFIT ON JOI 1L COST AND INC 4L GROSS PROFIT Contract Number 00 * S " CONTRA ^ JOBBINC GROt -r~ f^ O O &-. t-, PART II FIELD ACCOUNTING CONTROL CHAPTER XI COST ACCOUNTS AND UNIT COSTS Need for Cost Accounting. In the first part of this book consideration has been given to the forms, records and entries required to assemble expenditures for materials, supplies, services, salaries and wages in such a way as to show (1) the cost of each contract and job, (2) the cost of all contracts and jobs, (3) the individual and total amounts of material, labor and expense, (4) the actual earned income and (5) any other information pertinent to the financial management of a contractor's business. Successful contracting, however, de- pends in part upon the ability of the engineering department to devise ways and means of recording and classifying the kinds of work done on each contract or job for the purpose of com- paring the cost of this work in its detail with the cost of similar work or with past performances. It is not sufficient for the contractor to know that on a large piece of construction work so much has been expended for labor, material, and expense, or that in the erection of a build- ing so much has been expended on excavating, bricklaying, ce- ment work and so on. For control purposes he should know, for instance, the labor cost of digging the basement, sheet- ing and bracing the banks, shoring adjoining buildings if necessary, under-pinning, pumping, and so on; he must know the quantity of lumber, cement, sand, stone, brick, and steel of various kinds used in the construction of a particular building and the labor cost of particular parts or floors of this building; and similarly, in the operation of his office, he requires to know the detailed cost of the engineering department for 10 145 146 FIELD ACCOUNTING CONTROL plans, photographs, engineers' salaries, architects' fees, etc., or of the general office for rent, light, heat, stationery, tele- phone, telegraph, equipment and the like. A method must be devised of splitting up the expenditures represented by invoices and payrolls and charging them to suitably entitled cost accounts. This requires a detailed account classification so arranged and symbolized that when the symbol is entered on the original invoice, time sheet, stores order or other loose paper the distribution can be accurately made to the proper cost account. Objects of Cost Accounting. The primary object of keeping such cost accounts are twofold : 1. They enable the management to analyze unit costs, that is the cost of doing a particular piece of work, with a view to securing the minimum cost possible under existing conditions. 2. They provide data upon which to base estimates of the probable cost of projected work. As a result of the analysis of unit costs, followed by a com- parison of the items with corresponding items of similar work previously done, the management may discover : 1. Excessive use of materials in erecting a given structure. 2. Excessive use of supplies such as coal, lumber, etc., in operating a plant or in construction work, whether due to ignorance, careless- ness or theft. 3. Inefficiency of foremen. 4. Inefficiency of workmen. 5. Padded payrolls. 6. Excessive waste of time due to plant breakdowns, the shifting of plant, waiting for materials and supplies, and so on. 7. Improper design of plant. Cost keeping secures many incidental advantages the most important of which, from the point of view of economy, are that fewer "bosses" are required on certain classes of work, for the report card is often more persuasive than the eye of the taskmaster; one skilled manager can direct more men and with much greater effectiveness than is possible where a cost system does not exist ; and systematic analyses of costs lead inevitably COST ACCOUNTS AND UNIT COSTS 147 to a study of reasons for differences in cost and this study is the first step leading to the invention of machines and to new methods for reducing costs. Construction costs on the general books, as we have seen, comprise labor, material, and expense, plus the proportion of expense applicable to the period and to each contract or job. Perhaps the majority of small contractors and not a few large concerns carrying on operations on a big scale are contented with this simple classification of costs. They know what a piece of contract work costs as a whole and they know the price they receive for it, the difference constituting the profit. But if they do not keep a record of the units of cost absorbed in the work and if a construction job of any size is operated, without keeping a detailed system of cost accounts, there is no effective control over expenditures. Cumulative Classified Unit Cost Record. Control over the units of cost incurred on set price or lump sum contracts and job work begins with the keeping of a "Cumulative Classified Unit Cost Record." All contractors have an estimating department and this cost sheet, as illustrated in Form 18, is one of its most important records. This record has no connection with the accounting branch of the business, but is essential as a guide to proper information concerning the work in operation. It is an analysis of the total quantities of materials and the cost of labor and expense which constitutes direct charges for items embodied in the contract. When filed as a record of work performed, it is a valuable reference to measure bids on any work of a parallel nature which may come to the contractor. This unit cost record is kept in the engineering and esti- mating department where the units of each class of materials are entered for the estimated quantity required to cover the contract. This information comes from the engineer, who determines the number of units of materials by referring to the specifications embodied in the contract. He also forecasts the cost of labor and direct expense necessary to perform the work. Thus the purpose of this record is to show at any 148 FIELD ACCOUNTING CONTROL L. K. COMSTOCK & CO. INC. GENERAL CONTRACTING CUMULATIVE CLASSIFIED UNIT COST RECORD 1 H S < S a a W a a 1 ^ ci = 06 i-H I 5 g i = ?! -D S S S :-' I- - 1 1 B g S " I- "a D H a 3 s: J 3 D i i a 3 K > o I Last Accumulated Total Units 1 1 j j I i i i i r i 1 s '5 i 1 i 2?S u S 5 a o H H H O U "3 a H I z ^ \ i t 3 A Material Classification M c COST ACCOUNTS AND UNIT COSTS 149 time whether or not the progress of work is keeping pace with the time agreed upon to complete, and also to know if the "cost in," is over or under estimated at certain stages of the work. The record is illustrated on page 148 (Form 18). A description of the materials is entered in the margin for the materials classification, and the number of estimated units is entered in the margin "Nature of Unit" on the line designated E. Any increase or decrease in the original estimated number of units is shown. The original quantity estimated plus any addition or minus any deduction in the next space following gives the last accumulated total to date. The line "0" (on the line under E), records the number of units delivered to the job, and the total units installed deducted from the last total on line " O" will be the number of units of that class on hand. If at the completion of the work the last total of "E" exceeds that of "0," there are that many units under the estimate, plus of course any units which may be on the ground. On the other hand, if the last total of "0," exceeds that of "E" the estimate has been exceeded by that number of units, less any on the ground. The units left over on the completion of work should be entered on the line "O" in red. The number of units left over should be the inventory number of units, as shown by the report of the number installed as against those delivered to the job, which number may be more or less. If there are more than the report calls for, it may be that the units installed have been over stated ; or, if less, understated. If such is the condi- tion, the credit to the contract for the number of units and their value will be reflected in the cost as over or under the actual cost. When the number of units left over are returned to the store room or transferred to another contract or job, a transfer ticket is issued for their value at cost, with which the completed work is credited and the new contract is charged. The forernan on the work should keep a record of the classifi- cations of materials used in the contract, charging each class with the number of units received, and crediting it with the number absorbed by construction and transfer. The difference 150 FIELD ACCOUNTING CONTROL between this charge and credit should be the actual inventory, both book and physical. This record could be simplified by the use of a set of cards arranged in a number classification of materials showing the units of materials received (Classified A 1 up), and another arranged in the same order for units absorbed in construction or transferred (B 1 up), the difference between the two being the inventory. This method of keeping the record would prevent any confusion of charge and credit which might happen through the foreman's ignorance of the principles of debit and credit. If there should happen to be a very big shortage of units on the ground, as against the differ- ence between the units received and those absorbed in construction or transferred, the cause should be located and correspondingly adjusted. Each week the amount of the payroll expense should be entered on the record as shown in the illustration. The estimate of the whole cost is entered at the top of the two columns of "Estimated Labor and Expense" and the footings of these amounts at any time, will show the outlay for these two costs to date. It might seem almost impossible to operate this sort of control on a big construction job, by reason of the way material is scattered when unloaded at different locations; but this difficulty could be overcome by running a departmental record according to the location, and the records could be decentralized. By this method of keeping cost on the field, the accounting records should reconcile with the report and estimate of the cost engineer, and a comparison should be made between the two at intervals and any variation adjusted to bring the accounting and engineering departments in agreement. Contract Cost Financed by Owner. When a contract is financed not by the contractor but by the owner it is customary to keep the accounting records in an office adjacent to the work and as the records relate only to the one job the system of field accounting is proportionably simple. In a later chapter the books and records required for the operation of such a COST ACCOUNTS AND UNIT COSTS 151 system will be taken up after the description of the cost account classification and its symbolization on which the system is based. In this chapter such matters will be discussed as are preliminary to the operation of field accounting. When a contract is financed by the owner it is usually on the basis of cost plus a fixed fee and the agreement may or may not provide for a percentage of any saving on the original estimate to be paid to the contractor in addition to the fixed fee. The nature of such a contract is defined by its title. The total cost estimated by the contractor's engineer is the basis for the amount of the fee. If the contractor performs the work under this cost, in some instances he is rewarded with a bonus of 10 per cent of the saving, while on the other hand, if the cost exceeds that of the estimate on which the contract was awarded, the contractor is subjected to a penalty reducing the fixed fee. This penalty may be the amount of the fixed fee multiplied by the rate of per cent the excess cost shows when divided by the amount of the estimated cost. For example, if a contract, estimated to cost $1,000,000 with a fixed fee of $50,000 is awarded under the above under- standing, it would be adjusted as follows: FIRST Contract, estimated cost $1,000,000 Cost at completion 900,000 Saving under the estimate 10 per cent 100,000 Agreed Fee $50,000 Saving $100,000 Bonus 10 per cent on above 10,000 Total Fee to Contractor $60,000 SECOND Cost at Completion Contract, estimated cost Excess cost over the estimate 10 per cent $ 100,000 Agreed Fee $50,000 Penalty 10 per cent of above 5,000 Net Fee to Contractor $45,000 152 FIELD ACCOUNTING CONTROL A cost plus fixed fee contract is generally financed by a separate bank account replenished by the owner's funds. An estimate of the amount needed to liquidate vouchers should be sent to the owner at regular periods to keep the bank balance at least 10 per cent above the approximate amount needed to cover current expenditure. When the copies of vouchers to be sent to the owner, have been verified and returned by the vendors, a statement with vouchers attached is given to the owner, showing the amounts actually paid for payrolls, mate- rial, and work performed by sub-contractors. That total is then credited to the contractor for work performed under the contract. The fact that the records are at all times open to the owner's inspection is an assurance to him of honest treatment. If purchase orders are submitted for his approval before mailing, and if invoices are also subject to his approval before payment, the responsibility rests entirely upon him, thus preventing an accumulation of disputed items which, if left until final settle- ment of the contract, might not be readily or satisfactorily explained and adjusted. Sub -Contracts. In the case of work performed by sub- contractors on a set price or lump sum basis a record is kept of the contract price and extras. This cost is included in the requisition for payment, and is treated as an invoice. All other forms of sub-contracts are also invoiced for work per- formed, and are classed in the records as ordinary vendors. In some cost plus a percentage, or fixed fee Contracts, the general contractor pays for the labor and material connected with a sub-contract, doing the purchasing himself, and liquidat- ing the invoices, and the sub-contractors labor force may be included in the general contractor's payroll. In other instances , the sub-contractor pays for his own labor and material, the payment being made by him on the approval of the general contractor. If such is the case, the sub-contractor at different intervals makes a requisition on the general contractor for reimbursement for the amount disbursed, at the same tune giving him a statement of the amount, with receipted support- COST ACCOUNTS AND UNIT COSTS 153 ing vouchers attached. The foregoing refers to percentage and fixed fee contracts only, as in all other classes such as lump sum, unit price, etc. the sub-contractor supplies both labor and material and pays for both. It is bad practice to have one sub-contractor favored on one job with two classes of contracts covering different kinds of work. For example, suppose a sub-contract is made for painting on a lump sum basis, and to the same party another contract is given on a fixed fee basis for paper-hanging. Assume that the sub-contractor supplies his own labor on the lump sum contract and pays for it out of his own funds, but that the general contractor's payroll includes the labor for the fixed fee contract. A journeyman who is a painter, is usually a paperhanger as well, or covers the two trades. Therefore when the condition is as above described it is possible for a paper- hanger, who is on the fixed fee contract payroll paid by the general contractor, to be occupied with painting work for which the sub-contractor is to be paid in his lump sum contract. If such a thing happens, the general contractor pays for work of paperhanging he does not get, while the sub-contractor gets painting done for which he does not pay. Where contract work is handled in this way the badges worn by the men should be numbered and sufficiently distinctive to show whether a man is on the contractor's payroll or not. CHAPTER XII ORGANIZATION AND PERSONNEL Field Personnel. When construction work of any magnitude is contracted for on a fee basis, the owner usually finances the project and liquidates the invoices as they become due for payment. Under these conditions a clerical force is required to represent and look after the owner's interests, and a field accounting personnel is supplied by the contractor to take care of the technical and detail side of the construction work. The number of the personnel and the duties in each case naturally vary with the conditions but to illustrate the organization required for field accounting work a description is given below of the organization employed to operate a big housing contract on which the author was engaged as auditor in charge of the owner's interests. The contract was for 700 houses, and was given to the contractor on a fee basis. All invoices were liqui- dated by the owner, but the material was ordered by the contractor and billed to the owner at the instance of the con- tractor as agent. The staff on the field representing the owner consisted of : Field Auditor and Assistants. Works Superintendent. Disbursing Officer. Work Inspectors. Cost Engineer. The field office force supplied by the contractor comprised : Contractor's Representative. Paymaster. Bookkeeper. Purchasing Agent. Material Expediter. 154 ORGANIZATION AND PERSONNEL 155 Timekeepers Material Receiving Clerks. Field Time Checkers. Field Superintendent. Stenographers and Typists. Porters. Watchmen for Police Duty. Duties of the Auditor. The auditor should familiarize him- self with the conditions embodied in the contract, so that he can intelligently determine the correctness of the invoices submitted for his approval before passing them for payment. He must determine whether or not the expenditures called for should be included in the cost to the owner, or treated as an expense of the contractor for plant items, etc., which he is to furnish. He must rely on his subordinates for the correctness of extensions, proper symbols of distribution, and trade dis- counts to be deducted. Accordingly he has to scrutinize very closely these invoices when auditing them; if he finds them correct in their preparation, he signs them, and they are then given to the works superintendent and contractor's representa- tive for their approval. On their return to him, he gives them to the bookkeeper for a register number; the bookkeeper then retains the triplicate for his files, and the original and duplicate are given to the auditor to vouch for payment. The method of recording the invoices on the field accounting books will be explained in Chap. XIV. The auditor is th us comptroller of the owner's financial connec- tion with the contract, and it is on him the owner depends for the economic and careful disbursement of his funds. His position is one of responsibility as well as authority; in fact, he is the "boss " of the job as far as the accounting is concerned. Duties of Auditor's Assistants. The chief duty of the auditor's assistants is to check expenditures for labor and materials. Therefore they should be responsible for the receipt of material and the signature of one of them should appear on every material receipt in conjunction with the con- 156 FIELD ACCOUNTING CONTROL tractor's checker; it is the assistant's signature on which the auditor must rely for the proper certification of invoices for payment. As a check on expenditures for labor, on payroll day all the receipts from the payee, when payment is made for labor services rendered, should be collected. The unclaimed pays must be taken over; these are placed in a box which has an opening for inserting the receipt. If there is more than one paymaster, there should be an auditor's assistant at each location to collect these receipts and unclaimed pays. If pay day is on Saturday, on the Monday following the receipts should be taken from the box and arranged in numerical order. When the payroll comes in, the names on which are compiled in numerical order, the receipts should be checked against them; any unchecked items on the payroll represent the un- claimed pay. By this system it is impossible to pad the payroll. A detailed description of methods of handling and checking the payroll will be found in Chaps. XV and XVI. Duties of Disbursing Agent. The disbursing agent is the cashier of the job; the owner reports to him the deposit of any funds, which may be subject to withdrawal by checks with which he is supplied to pay the vouchers certified by the auditor. These funds are not placed to his credit as a personal bank account, as the check is in the name of the owner, which he signs as agent only. This check is countersigned, also, by the auditor, and it bears the number of the voucher liquidated, which is typed in a margin provided for that purpose; it also bears a regular check number series. Checks are printed in sheets of five, and a carbon copy is made of each check when typed. These copies, also rfave the check number inserted on them before being typed; in fact, these numbers are a part of the system for the prevention of any overrun of numbers. As the checks are drawn to cover the items to be paid on the pay list, they are signed by the agent and auditor, and forwarded to the vendor. The agent then puts the duplicate pay list on an arch file, and this consti- tutes a record of paid vouchers. From this record he makes a ORGANIZATION A\l) PERSONNEL 157 " Disbursement List" which is an identical copy, with the excep- tion that he prefixes the check number to each voucher number ; this is the detail record of his cash disbursed, the duplicate of wliich is also put in an account file. To the original disburse- ment list he attaches the copies of checks drawn and also a statement of the balance on hand less the disbursement list, which result is his final balance. At the same time he makes a request by letter, signed by both himself and the auditor, for additional funds to meet the payments of the next period as forecasted by the auditor; he then forwards these papers to the owner. His only book of account is a bound cash book in which he debits the original funds allotted him, plus any additional funds. He credits this book for the total of the disburse- ment list, and the balance is the cash in bank, subject to further withdrawal. The original pay list and vouchers, with original invoices attached, are mailed to the owner for his records, and this completes his duties. His service is only necessary on a big job, as on an ordinary one, his duties may well be covered by an assistant to the auditor. The Works Superintendent. The works superintendent, when on the job is the representative of the owner. He jnay have under him subordinates, such as inspectors and cost engineers but as this is a treatise purely on accounting, there is no need to describe the duties of those in control of construction. The Cost Engineer. While the work of the auditor and cost engineer are of a distinctly separate nature, their relations are, to a degree, interlocked, in that they determine the progress of cost from different angles. It is advisable for them to get together at short periods and compare notes., so as to insure reconciliation in the cost figures shown by both departments. ' The cost engineer gets his detailed information at intervals from the w r orks superintendent. The labor and material costs are secured through the field auditor, these being used to check the progress of the w r ork as compiled 158 FIELD ACCOUNTING CONTROL from quantities and values derived from reports given him by those in positions of supervision. In making up his progress reports, the engineer must work parallel to the units governing the official estimate when units are the rule, and in the case where lump sum figures are given, he must show the progress by percentages. Special and close attention must be given to items which are the most conspicuous part of the work or which form the biggest percentage of the w r ork as a whole such as masonry, carpentering, plastering and plumbing in .the architectural branch; and streets and sewers in the engineer- ing division. He must scrutinize carefully each daily report of work turned in by the various foremen on the job to see that they are careful to cover every feature of the work under their supervision and that their figures tally with the amount of labor and material absorbed as shown by the records. The percentage of work completed is arrived at by secur- ing the per cent that a specific branch of the work bears to the whole, which is taken at 100 per cent. This process is called "weighting the items" which make up the job as a whole. The method will be readily understood by the study of the following figures: Item Percentage completed Weight Product of both Percentage completed of whole Excavation 92 78 69 60 47 21 26 58 15 35 46 3 27 24 4 13 4 2 12 6 3 2 2 21 16 2 6 6 1 76 06 56 40 11 84 52 96 90 05 92 Masonry Carpentry Roofing .... Plastering . Painting Hardware Plumbing Heating Lighting Sheet metal Total 100% 60 08 60% ORGANIZATION AND PERSONNEL 159 Monthly Reports to Owner. The monthly report to the owner comprises the following exhibits which will be illustrated with interlocking figures in a later chapter. 1. Statement showing cost to date and summary of the disbursing agent's advances and disbursements to date. 2. Recapitulation showing group cost of A and B, which is a recapitu- lation taken from the schedule of sub-account costs of A and B as accumulated on the Construction Record to date, and acts as a Trial Balance. Schedule A detail footings of construction cost of each sub-dis- tribution on the record to date. Schedule B detail of items debited to suspense, paid for but undistributed to cost. 3. Paylist analysis for month, showing the amount charged to owner and credited to disbursing agent. 4. Schedule of sub-contractors, showing the amount due each, and the over and underrun effect on each, and a summary of same. 5. Status of contract accounts at beginning and end of month, and their current entries; also, trial balance proving their correct operation. 6. Schedule of unclaimed wages. 7. Schedule of collection bills and refunds paid during the month. At the end of each week the contractor reports the progress of construction for all material in and on the ground, for the purpose of arriving at a value for insurance, the owner attending to the issuance of the policy. This report, while showing the fire insurance needed also summar- izes the progress of the work as a w r hole. Insurance policies, however, do not cover the cost of excavating cellars nor the value of the foundations below the level of the ground, nor materials and supplies not intended to be part of the building. Therefore after making out the total value of the construction cost to date the report should deduct for items not covered by the policies as shown below : 160 FIELD ACCOUNTING CONTROL Total amount of approved payrolls and invoices taken to account in expense register $1,593,346.22 Total value of materials on hand not yet recorded 12,050.78 Contractor's equipment, value as fur- nished by contractor 20,000.00 Total $1,625,397.00 Less items not covered by fire insurance (Labor and material inclusive) Excavating $15,589.64 Grading 50,401.58 Track Work None Brick Work 1 for founda- Concrete Work j tions 90,000.00 Clearing 2,300.00 Stone 55,476.50 Structural 15,446.62 Contractor's Plant $229,214.34 Utility Work Water lines. . . . $28,247.28 Sewer lines 80,178.77 Gas mains None Electric con- duits . . . None Roads Landscape work $37,460.20 $145,886.25 $375,100.59 Net insurable total $1,250,296.41 CHAPTER XIII CLASSIFICATION AND SYMBOLIZATION OF ACCOUNTS Basis of Account Groups. When installing a system of field cost accounting the first thing to consider is the depart- mental or group divisions into which the various costs naturally divide themselves and this grouping can best be determined by reference to the original estimate in which costs are divided into their natural groups. As the cumula- tive classified unit cost record is based on the classification of the official estimate, it is obvious that the cost account- ing classification should follow the same lines, so that when the cost statement and reports of progress are compared with the estimate, any difference over or under will show up. Hence the success of the field accounting system hinges on making the classification of cost identical in its grouping with those of the main groups on the official estimate. The symbols to cover them should show no variation. If they do confusion results immediately. Main Group Classification. The main group should be designated by symbols or numbers in groups or breaks of 10 as for example 110, 120, 130, etc., allotting new numbers to each group until all are symbolized. In the construction of dwellings, or on a big building project, the main groups would include such classifications of work as are listed below : GROUP GROUP ACCOUNT ACCOI-NT SYMBOL TITLE SYMBOL TITLB 110 Preparation of Site 180 Brick Work 120 Excavation 190 Lathing 130 Concrete Work 200 Plant 140 Rough Carpentry 210 Plastering 150 Exterior Millwork 220 Plumbing 160 Interior Millwork 230 Heating 170 Stone Masonry 240 Sheet Metal Work 11 161 162 FIELD ACCOUNTING CONTROL GROUP GROUP ACCOUNT ACCOUNT SYMBOL TITLE SYMBOL TITLE 250 Electrical 320 Sewer Utilities 260 Painting 330 Water Utilities 270 Roofing 340 Gas Utilities 280 Fences 350 Bridges & Culverts 290 Landscaping 360 Sub-Contracts 300 Cleaning Up 370 Stores Un-assigned 310 Street Utilities 380 Field Overhead Labor, Material and Direct Expense Classifications. On each of the group classifications of work shown above three classes of construction costs are incurred, namely: Material, labor, and direct expense. As each group is divided into three kinds or classes of cost, each class must be represented by the three successive numbers of the group which would be: Labor, 111; Material, 112; and Direct Expense 113. Thus an invoice or voucher, when marked with the symbol 112, would be charged to that account number, which account records the cost of the material used in the preparation of the site; account 113 would be the direct expense incurred on site preparation, and so on. Material, labor, or expense, however, may be of many different classes. Therefore each of these numbers, 111, 112, 113, etc., is further expanded by affixing unit symbols by which the nature of the material, labor and direct expense is classified as follows: SYMBOL MATERIAL SYMBOL MATERIAL .01 Lumber. .01 Digging General. .02 Underpinning. .02 Digging Sub-Basement. .03 Rings (Steel). .03 Sheeting & Bracing banks. .04 Cement. .04 Shoring adjoining Building. .05 Sand. .05 Under pinning. .06 Stone. .06 Pumping. .07 Brick. .07 Backfilling & Grading. .08 Steel (Structural). Direct Expense .09 Steel (Reinforcing). .01 Liability Insurance. By referring to the group account symbols it is seen that the number for plant items is 200. Therefore 201 would be CLASSIFICATION AND SYMBOLIZATION OF ACCOUNTS 163 labor in moving plant, 202 plant material, 203 plant direct expense with sub-classifications in each case which might be as follows: 201.1 Transportation (Equipment Plant) 201.2 Erection of Equipment. 201.21 Labor. .22 Material. 201.3 Equipment charge and Credit basis. 201.31 Labor. .32 Material. 201.4 Equipment rental. 201.5 Fuel, lubricants & power. 201.6 Repairs. General Expense Classification. Overhead Cost is repre- sented by the 380 group symbol which might be expanded to the sub-account classification as follows: 381 Salaries, General Labor and Expense. 381.1 Superintendent and Engineers, orj 381.11 Supt. .12 Engineers. .2 Office Employees. .3 Material Checkers and Timekeepers, or| 381.13 M.C. .14 T.K. .4 Laying out building. .5 Watchman. .6 Water Boys. .7 Toolmen. .8 Liability Insurance. .9 Traveling Expenses. 382 Engineering Expense. 382.1 Plans and Engineering Supplies. .2 Photographs. .3 Engineering Service. .4 Architects fees. 383 Office Expense. 383.11 Rent. 383.1 Rent, Light and Heat, or .12 Light. .13 Heat. .2 Stationery & Printing. .3 Telephone. .4 Telegraph. 164 FIELD ACCOUNTING CONTROL .5 Postage & Expressage. .6 Adding Machine & Typewriter Rental. .7 Furniture. .8 Towel Service. .9 Miscellaneous. 384 Other Field Expenses. j i-\ir -if/-! \ ] 384. 11 Maint. 384.1 Bonds (Maint. & Constn.) \ 12 Constn. .2 Permits & Licenses. .3 Fire Insurance. .4 Burglar Insurance. .5 Legal Services. .6 Association Dues. .7 Floor Tests. .8 Ring Tests. .9 Advertising. 385 Temporary Structures. 385.1 Offices. .2 Toilets. .3 Toolhouse, Storage Sheds, etc. .4 Stairs & Ladders. .5 Fences, Sidewalks, etc. .6 Platforms & Driveways. .7 Repairs and Protection to adjacent Property. .8 Protection to Public Utilities. 386 Temporary Light, Heat & Power. 386.1 Light. .2 Heat. .3 Power. 387 General Cleaning. 387.1 Labor. .2 Trucking. Sub-Contract Classifications. Sub-Contracts are gov- erned by the 360 group symbol, which comprises all classes of work whether on the basis of lump sum, fixed fee, or unit price. Sub-contracts might be classified as follows: 360 Sub-Contracts. 361 Wrecking, Excavating & Shoring. 361.1 Wrecking. .2 Excavation. .3 Shoring. CLASSIFICATION AND SYMBOLIZATION OF ACCOUNTS 165 362 Heating, Plumbing & Wiring. 362.1 Steam. .2 Plumbing. .3 Electric. 363 Interior Construction. 364 Painting, Paperhanging, etc. 365 Millwork. 366 Roofing. 367 Fireproof Doors & Windows. 368 Interior Finish. 369 Paving Streets, Sidewalks, etc. Illustrative Sub -account Classification. The following sub-account classification illustrates the actual account symbols used by a large contracting concern in the field accounting covering the erection of a number of dwellings. The main groups are those given on pages 161 and 162 of this chapter and the method of sub-classification has been indicated in preceding pages. Sub-accounts Symbol GROUP ACCOUNTS LABOR MATERIAL NATURE OP COST SYMBOL 110 120 130 140 150 160 170 180 111.01 112. Cleaning .02 Grubbing .03 Rough Grading .04 Removal of Buildings 121.05 122. Earth .06 Rock 131.07 132. Footings .08 Foundations .09 Cement Floors .10 Steps .11 House Walks 141.12 142. Framing .13 Erecting 151.14 152. Erecting 161.15 162. Trim .16 Wood Floors 171.17 172. Foundations .18 Porch Piers .19 Stone Walls 181.20 182. Building Walls .21 Porch Piers 166 FIELD ACCOUNTING CONTROL Sub-account Symbol GROUP ACCOUNTS LABOR MATERIAL, NATURE OF COST SYMBOL 190 200 210 220 230 240 250 260 270 280 290 300 310 320 330 191.22 192. Wood Lath .23 Metal Lath 201.24 202. Plant 211.25 212. Brown or Scratch Coat .26 White or Finish Coat .27 Patching 221.28 222. Roughing .29 Finish or Setting Fixtures .30 House Connection 231.31 232. Roughing .32 Fixtures 241.33 242. Cornices .34 Flashings .35 Gutters .36 Ventilators 251.37 252. Wiring .38 Setting Fixtures 261.39 262. Exterior .40 Interior .41 Decorating 271.42 272. Tin .43 Slate .44 Slag .45 Prepared 281.46 292. Wood .47 Iron 291.48 292. Finish Grading .49 Planting 301.50 302. Cleaning Up 311.51 312. Excavation .52 Paving .53 Concrete Curb and Gutter .54 Public Side Walks 321.55 322. Excavation .56 Shoring .57 Laying Pipe .58 Back Fill 331.59 332. Excavation .60 Shoring .61 Laying Pipe .62 Back Fill CLASSIFICATION AND SYMBOLIZATION OF ACCOUNTS 107 Sub-accounts Symbol GROUP ACCOUNTS LABOR MATERIAL NATURE OF COST SYMBOL 341.63 342. Excavation 340 .64 Laying Pipe .65 Back Fill 351.66 352. Excavation 350 .67 Forms .68 Concrete .69 Stone Work 361.9 Sub-Contractors 360 370.01 Cement 370 .02 Lime .03 Brick .04 Plaster .05 Slag .06 Sand .07 Gravel .08 Rough Hardware .09 Finish Hardware .10 Reinforcing Steel .11 Lintels, Anchors, etc. . 1 '2 Fences .13 Rough Lumber .14 Lath .15 Millwork .16 Flue Linings .17 Wire .18 Electric Fixtures .19 Plumbing Fixtures .20 Gas Fixtures .21 Hot Air Fixtures .22 Steam Fixtures .23 Roofing Paper .24 Roofing Slate .25 Roofing Tar .26 Roofing Tin .27 Paints .28 Oils 370.29 Colors 370 .30 Kalsomine .31 Wall Paper etc. 168 FIELD ACCOUNTING CONTROL The sub-account symbols for the 360 and 380 groups sub-contracts and (Field Overhead) have already been presented and need not be repeated. In the study of the foregoing account symbols it will be noted that the labor classification symbols run from .01 to .69. When these numbers are affixed after the point following the group symbols, this gives the sub-account symbol number. The numbers can run higher than 69 if the classification calls for it. When laying out and numbering the classification of each group it is well to provide extra numbers to cover any unforeseen classifica- tion which may not have been determined in the first layout. The numbers will then retain their sequence, thereby preventing confusion. The classification of material is covered by the 370 group from .01 to .31, and can also be carried to a higher number if the classification calls for it. The 370 group should be charged for all the material that cannot be assigned to a specific feature of the work direct from the invoice. The accounts in this group constitute the material inventory. The charges to them should consist of the cost of the material plus freight in and the labor cost of handling. The total value showing each month should be divided by the total units on hand to give an average price per unit. Such material as brick, lime, sand, slag, cement, lumber, etc., should be delivered to the work on store room order, showing the total units and the symbol of the sub-account to be charged. These store room orders should be analyzed at the end of each month according to the nature of the material and their quantities, and valued according to the average price per unit as determined at the end of each month by the accounts of the 370 group. Then a journal entry should be made charging each sub-account for cost, and crediting the 370 group accounts for the transfer from the latter accounts to the former. If material is charged to a specific cost direct from the vendor's invoice, and it is found that the quantity delivered CLASSIFICATION AND SYMBOLIZATION OF ACCOUNTS 169 exceeds that required, a transfer ticket should be made for the surplus material, charging Store Room and crediting the feature of cost which has been charged direct from the vendor's invoice. There is no limit to the extent this decimal symbol method of classification can be expanded, and at the same time it never confuses or loses its efficiency of directness, as it retains at all times its sequence in numerical order. CHAPTER XIV FIELD ACCOUNTING RECORDS Main Records. As explained, field accounting is usually conducted under the control of the owner so far as concerns the payment of expenditures in fulfillment of the contractual agreement but the actual accounting cost work is performed by the field force of the contractor. On a construction job of any magnitude, when for control purposes it is necessary to distribute invoices, materials, and payrolls to a detailed cost account classification devised on the lines explained in the preceding chapter, four main books of record are required ; and auxiliary to these main books are a number of forms and distribution sheets such as journal entry blanks, payroll sheets, storeroom orders, field orders, and so on. Although the four main books differ in form and title with varying conditions as to size and complexity of the contract work, their general purpose is indicated by the following descriptive names: 1. Combined Cash and Ledger Control Journal. 2. Invoice and Payroll Register. 3. Construction Cost Record. 4. Accounts Payable Ledger. The first record collects the total amount of invoices and payrolls to be charged to Construction Cost and credited to Accounts Payable; the second record shows the distribution of the daily construction cost to the main group accounts; the third record shows the distribution of each main group to the sub-accounts within this group ; and the fourth record is an ordinary Accounts Payable Ledger. It will thus be seen that record No. 1 controls No. 2, and record No. 2 controls No. 3, while record No. 4 contains the detail of 170 FIELD ACCOrXTIXG RECORDS 171 the invoices charged in the first three records to (1) the main control accounts, (2) the group control accounts and (3) the detailed cost accounts. Cash and Ledger Control Journal. This combination record, as illustrated in Form 19, is used for the purpose of showing all cash received, whether from the owner in settle- ment of construction costs, or as an advance from the contractor for the purpose of financing the work until paid for by the owner; (2) all cash paid under approved invoice, or payroll vouchers; and (3) the total amount of the Accounts Payable liability incurred to date. Each entry constitutes a journal entry debiting and crediting (1) Cash for the amounts received and paid, (2) debiting Construction Cost with the expenditures incurred and crediting it with any deductions from these expenditures, and (3) debiting and crediting Accounts Payable in total with the invoices paid and the liabilities incurred. In addition two columns are provided in which the Construction Company's account is charged with the payments made by the owner who is credited therefore. Another column shows the total advances from the general office to date (the offsetting credits to the advances made by the contractor) and a final column shows the reimbursement by the owner to the contractor's general office. With this preparatory explanation the study of the illustrative entries shown on page 172 should now be self- explanatory. In the study of Form 19 it should be noted that the record is ruled off and the balances are brought forward after a statement is sent to the owner showing the amounts dis- bursed to date. A statement may be rendered weekly, monthly or as circumstances require. In the illustrative figures 10 per cent is added to the total to be reimbursed, this percentage representing the contractor's fee. Invoice and Payroll Register. The Invoice and Payroll Register (Form 20) shown with illustrative entries on pages 174 and 1 75 is the book of first record for invoices and payrolls. When an invoice or payroll has been approved for payment, 172 FIELD ACCOUNTING CONTROL Record Number 1 Job Date J. E. A Voucher Check Name Ca sh Dr. Cr. 1 1 19 Contractor $5000000 27 J E 1 27 1 1 T. Jones & Co $ 442 50 27 2 2 H. Harris & Bro 200 00 27 3 3 J. Williams Co . 350 00 27 4 4 Patterson Bros 472.00 27 5 5 600 00 27 6 6 25000 27 7 7 Payroll 3,500.00 27 g g J. Ostrander & Son 27000 27 9 9 L K Comstock & Co 96 00 27 10 10 400 00 27 1 1 C. S. Wilson & Co 275.00 27 2 2 Tatham & Co 75000 27 3 3 Osgood Jones & Co 275.00 27 4 4 Booth Bros. Co 500.00 27 5 5 Tower & Co 25000 27 6 6 17500 27 7 7 J. H. Richards & Bro 9000 27 g g Gilbert Wilson Co 27600 27 9 9 Payroll 4,000.00 27 20 20 C. Lynch & Bro 150.00 27 1 1 E Ellinger & Son 175 00 27 2 2 203 00 27 3 3 J. A. Anderson 176.00 27 4 4 W & J Goodwin ... . ... 90.00 27 5 5 W L Secor & Co 70000 2 5 Owner 5 6 Contractor 14,665.50 6 Balance 50,000.00 $64,665.50 $64,665.50 6 Balance $50,000.00 10 26 26 R. L. I.i n >m i.- & Bro $ 46.00 10 7 7 Payroll ... 4,250.00 10 g 8 Passaic Lumber Co 6,000.00 10 9 9 N. J. Lumber Supply Co 1,400.00 10 30 30 T. Watson & Co 790.00 10 1 1 Wm Lloyd & Son ... 93.00 10 2 2 Northern Lumber Co 104.00 10 3 3 W. J. Anderson & Co 110.00 10 4 4 Payroll 4,500.00 15 Owner 15 Forwarded 16 17,293.00 16 Balance 50,000.00 $67,293.00 $67,293.00 16 $50,000.00 FORM 19. Cash and FIELD ACCOUNTING RECORDS 173 Sheet Number 1 Job Construction Cost Accounts Payable Com- pany Ac- count Advance from Gen. Office Reimbursement Gen. Office Owner Dr. Cr. Dr. Cr. Dr. Cr. Dr. Cr. $31,966.00 $ 7.50 31.958.50 $ 7.50 14,665.50 17.293.00 $31,966.00 $50.000.00 14,665.50 $16.132.05 19,022.30 $16.132.05 19.022.30 $31,958.50 31.958.50 $17,293.00 $17,293.00 $64,665.50 17,293.00 $31,958.50 $81,958.50 $35.154.35 $35.154.35 Ledger Control Record. 174 FIELD ACCOUNTING CONTROL g |g e 8 88 O 03 S S S 8 o a 8 | s. s. s. i S 3 j3 "a * " PM 8 8 n / O .2 Q * ~ JS 8 88 o o e >f O "5 O 1 ^ i 8 88 8 8 888 Ci O Q *O O U3 O I s * O O I s * O I s * O3 ^ ^* -^ CO O CS Tf ^H ^ x -B 4 ^ M 888888888888888 8888888888 5 OOONOOOOOg"5O>OOO S2 OI SS o c H ae eo ^" 3 a> 3 "S ; 5 Q " *J :::2 :::: 2: : : i ^j^auW Q 5 8 Q oOc r?"" W^GJO fc Invoice g 1 5 > N es ^. w w ^ ooo. o - (N eo w w w 5 o t- oo o. Q 2^ FIELD ACCOUNTING RECORDS 175 8 8 8 8 I 8 8 8 8 8 8 (0 j^ fs <* o 8 S 8 I S S |S 8 S 8 d 8 8 804 8 t. t~ R b 8 g 00 88 8 S 8 8 8 2 'u S o 2 8 8 8 8 8 8.8 8 So *o o c* CO N 8 i rt J"* T3 i 88. 8 8 88 oe 8 88 ei o o 8 M " CO O l- ^H S5 es > i-l CO S d i 888 888 8882 88888888 2 o 8 N S? n i" t-. _ . rt S ^ * R. L. Loomis A Bro. Payroll Passaic Lumber Co. . N. J. Lumber Supply Co L. L. Watson A Co. . Wm. Lloyd A Son... Northern Lumber Co W. J. Anderson A Co Payroll T. Jones A Co T. Jones A Co J. Williams A Co Tower Co Payroll L. K. Comstock A Co C. Metzgcr A Bros. . C. J. Lynch A Bro. . . Gilbert Wilson Co. . . Forward co r- oo o 1-1 -,i*. CO f* 00 O5 O * * C^ CO c> o N co >o to t~ t- :i :i :i :i -^Neow^iotor* M 176 FIELD ACCOUNTING CONTROL it is given its consecutive number and entered on the register, after which it is posted to the credit of the vendor in the Accounts Payable Ledger and to the detail cost account in the Construction Cost Record (No. 3 book). The totals accumulated in the Invoice Register are posted, in total and singly, in the Cash and Ledger Record (No. 1) when a state- ment is sent to the owner. The distribution columns of the register are headed with the names and numbers of the group accounts covering the allocation of costs. Construction Cost Record. The Construction Cost Record illustrated in Form 21, differs from the Invoice and Payroll Register in that its distribution columns provide for showing quantities when necessary as well as values. One sheet is allotted to each group of accounts and as many distribution columns are provided as there are sub-accounts in the account classification. To insure the correctness of the distribution, invoices and payrolls before entry are sent to the field auditor who, with his account classification before him, enters on the original record the number of the account to be charged. The totals of the Construction Cost Record columns are carried forward from one sheet to another, thus furnishing a complete record of the detailed cost of the con- struction work until its completion. At the back of either the Construction Cost Record or the Accounts Payable Ledger and in a separate section are kept any suspense or deferred asset accounts for materials and supplies purchased in advance of immediate requirements. These accounts are operated in the usual way and require no comment. Accounts Payable Ledger. The Accounts Payable Ledger, as already stated, is an ordinary loose leaf debit and credit account ruled ledger. The accounts are arranged in the alphabetical order of vendor's names and the postings are made direct from the invoices after they "have been registered and vouchered for payment. Any entries to negative the credit entries are vouchered by means of memos received from the auditor. When invoices are paid and the vendor accounts are debited, cash is credited on the 177 o Expense o 3 = 3 2 Amount 8 IO $175.00 w q| M HH j Amount 88 8 do o t^ o a> S $802.00 11 Quantity 9 > 1 1 S 3 Amount 8 S 888 i S 8*3*" * N ^^ S i it O S M '5 ^: . g Q Amount 888 8 $6,050.00 *> 5 O O 3 90 u 1 01 R! O S U U 5 s < 5 8888888888888 8 IN 0. O H a -H ~ ^""'^SSNWNSwwwn s Q H 12 178 FIELD ACCOUNTING CONTROL Cash Ledger Record. To preserve the control agreement between the two records an account is opened in the ledger to record payroll disbursements. If all the postings are up to date the total balance on the Accounts Payable Ledger should be in agreement with the balance of the Accounts Payable column on the Cash Ledger Record. Checks in payment of invoices and payroll are made out in sets of four at the construction office, and it is a good plan to have the owner's representative countersign each set. The check which is the original voucher, goes to the vendor, the duplicate is for the contractor's records at his general office, the triplicate is kept as a job record in the field, and the quadruplicate is the "Owners Copy" which is forwarded to the vendor with the original, to be receipted by him, and returned to the contractor, to be attached to the statement sent to the owner. Simplification of System. The operation of the four records just described is all the bookkeeping required so far as concerns the main records kept on a big construction job. On a job of smaller size the books of account can be further simplified by dispensing with the combination Cash and Ledger Record and by keeping the cash account in a separate Cash Journal with the necessary distribution columns. As a further simplification the headings of the distribution columns in the Invoice and Payroll Register may be entitled "Construction Costs" "Overhead" and "Inventory" with each classification divided into "Labor" and "Material." Thus all invoices and payrolls would be charged to this one record and credited to Payroll or Vendors' accounts in an Accounts Payable Ledger. If any further distribution of invoices and payrolls to sub- accounts is required, this may be made on a distribution sheet ruled with as many columns as there are sub-accounts to be debited and credited. The operation of all such distribution records is the same in principle and therefore the headings and rulings, which will vary more or less with each construction contract, need not be described. FIELD ACCOUNTING RECORDS 179 8 a '3 O ~H OS Ol r>- 8GCOOOOOOO O 1C O O O O CO OOOQCOOOOOiCiCC^OOO 1C co'c^oicioc^t^oscd COt t ^'I'GCOiCO^OOi 'ICO^C ^ O5iCOCOt;pt--fOOC''l < CaCCO O OS* r>- . QUOTATIONS MUST BE IN OUR HANDS ORDINQ TO OUR DESCRIPTION AND B IN DETAIL. WE RESERVE THE OUR SPECIFICATIONS; IF NOT IN > AT TOUR RISK AWAITING DI8PO8I- ON CHARGES BOTH WAYS ON ALL PERLY FILLED OUT AND RETURNED I CARTAGE UNLESS SPECIFIED ON BY 191 VERY TRULY YOURS, Item Quantity Article and description List price Discount Net price Total Net Price TO WE QUOTE YOU AS ABOVE. SHIPMENT \ DAYS FROM RECEIPT eiLL BE M OF ORDE ED ADE R. DATE 191 SIGN FORM 26. 186 FIELD ACCOUNTING CONTROL PURCHASE ORDER ,191 No.. To... Please furnish with the articles named below. Ship to Origin FORM 27. HANDLING FIELD PAPERS 187 Store Room Orders. Store room orders for withdrawals from stock of materials or supplies which cannot be charged to cost direct are issued by foremen in sets of three. The original is sent to the storekeeper, the duplicate is priced and sent to the field accounting office, and the triplicate is retained by the foreman. The orders that go to the accounting office are allowed to accumulate and are analyzed at the end of the month for the amount to be charged and credited for each period. This analysis is framed into a CAR CARD RECORD CAB OB DEE JOB ITEMS VEJJDOB AXD SHIFPEB SHIPPED SHIPPEB. BOUTLSG- FORM 28. journal entry charging cost and crediting the inventory accounts, and is entered on the Invoice and Payroll- Register as a transfer. The details which go to make up these totals are posted to the various cost accounts on the Con- struction Cost Record according to the symbols shown. As previously explained, it is well to have these orders printed and numbered in pads of 100, and issued to the foreman a pad at a time, his receipt for them being secured upon delivery. All orders issued, cancelled, or not used should be turned into the accounting office, as by that rule there can be no leakages from missing orders. Timekeepers and Payroll Records. The first operation each morning, at the start of a shift, is to "check in." There are various methods employed. The standard time 188 FIELD ACCOUNTING CONTROL GENERAL CONTRACTING CORPORATION CERTIFICATE OF INSPECTION House No. Dated, 191fl. Block No. Project No. At.. Street No. The undersigned committee, representing the Construction Division and the Operating Division of the General Contracting Corporation and contractor, and acting by virtue of an appointment by the chiefs of the respective divisions mentioned, hereby certify that the house referred to above has, except as otherwise hereon noted, been com- pleted in accordance with plans and specifications, including all changes therein authorized by the General Contracting Corporation, and in compliance with the terms of the contract. Work's Superintendent Architect's Representative Town Manager Contractor's Representative N.B. Any work found incomplete or not in accordance with the con- tract is to be noted hereon. FORM 29. II A \DLI\G FIELD PAPERS 189 ... - O = 3 "I 190 FIELD ACCOUNTING CONTROL clock, which prints the time on the cards in black ink if early and in red if late, while very exact, is slow in opera- tion as each man in the line has to insert his own card in the clock and hand it back to the timekeeper who reassigns it to the employee's number in the card rack. As one clock is capable of handling only about 300 men in 15 minutes, and as the cards must be kept in the time office until the end of the week, whereas the payroll should be made up daily, the time clock method is not to be recommended. The most rapid and effective plan of time recording is to check off the workmen's numbers on a " Daily Time Sheet" ruled with 10 columns, 100 lines to a column and each column divided into three spaces for "Workman's Number" "Time in" and "Time out." As the men come to work they hand their checks to the timekeeper, the timekeeper calls out the number to a clerk in the office, and the clerk makes a check mark in the space for "Time in" against the number, if a man begins work at the regular time. Irregular hours for beginning or quitting are marked in figures. As an aid to the clerk in finding the space allotted to each number, every tenth line is ruled heavily. Hence it is the work of a second to find the space on the sheet allotted to a particular number and check marks can be made almost as quickly as numbers are called out. As the men quit work the checks can be collected and marked off on the sheet at leisure. A sheet 18 by 10 in. will accommodate 1000 names, arid while it covers all the requirements of the time cards, it is more efficient and economical in operation. A mistake in checking the wrong number is provided for in two ways: First, if one number is wrongly checked two checks marks are likely to be made against it and the proper number left unchecked; secondly the accuracy of the daily time sheet is insured by a system of field checking while the men are at work. This Form follows: HANDLING FIELD PAPERS 191 DAILY TIME CHECKING SHEET Month 4 Day 20 Year 1920 Hundreds 1 2 3 4 Employees No. A.M. In P.M. Out No. In Out No. In Out No. In Out No. In Out I/ 1 V V 1 V IX 1 ' 1 1 2 IX V 2 IX I/ 2 2 2 3 IX V 3 I/ I/ 3 3 3 4 IX IX 4 11 9.10 4 4 4 5 V V 5 IX ix 5 5 5 6 6 V IX 6 6 6 7 V V 7 V IX 7 7 7 8 IX IX 8 IX IX 8 8 8 9 9 I/ IX 9 9 9 10 IX V 10 K k- 10 10 10 1 10 ix 1 V IX 1 1 1 2 V IX 2 tx ix 2 2 2 3 V 3.15 3 I/ IX 3 3 3 4 V IX 4 9.30 10.30 4 4 4 5 9.10 IX 5 5 5 5 6 IX IX 6 6 6 6 7 V 10.30 7 7 7 7 8 IX tx a 8 8 8 9 V IX 9 9 9 9 20 20 20 20 20 1 ix V 1 1 1 1 2 ix V 2 2 2 2 To To To To To 99 99 99 99 99 Verification of Time Records. Every big construction job has several time checking booths, each of which under the system as outlined above can take care of from 600 to 800 men. Obviously, they should be located in the place nearest to the work on which the groups of men are engaged. As a check on the accuracy of the first record after the men check in each morning a list is given to the field checker which is ruled with columns headed: "Acct. Symbol," "Badge "Rate," "Amount," No." "A.M." "Hours," "P.M." 192 FIELD ACCOUNTING CONTROL The numbers are entered on this list from the checking sheet and the checker then proceeds to locate the men at PAY CHECK No. RECEIVED IN FULL WEEK ENDING $ ALL WAGES FOR SIGNED WITNESS HIS MARK THIS PAY SLIP IS NOT TRANSFERABLE TOOLS OK. BADGE OK. Form No. S 8066 WORKMAN'S NUMBER CONTRACTOR NAME WEEK ENDING TOTAL MRS. AMOUNT TOTAL HOURS RATE AMOUNT DUE CHECKED BY FORM 32. work; he must see them on the job. If a man cannot be found he must have the foreman account for his absence or transfer. After checking the men he gets the account symbol for the daily distribution from the foreman at the HANDLING FIELD PAPERS 193 end of the shift. These lists are extended for the services rendered at their daily rates. The next morning these extensions are compared with the time as shown on the daily in and out sheet, and if found in agreement, they are distributed on "Daily Payroll Analysis" to their respective symbols; the totals as shown on the EMPLOYEE'S HISTOKY CAKD Aft Nationality Present nd M-rr.,,,1 Born lit Father'* Position Bate Hirfd Left Transportation- Ed!] ark i FORM 33. DAILY EMPLOYMENT REPORT Location- POSITION Number Number U0uut4 Numbtr transler'd Number nrw mn BEMARK8 FORM 34. sheet are charged to each sub-account, and then are accumu- lated on a "Weekly Distribution of Payroll. " The purpose of these two records is indicated by their names. The control, or amounts so distributed when framed into a journal entry for the total, will clear an account in the Construction Cost Record of Unadjusted Labor Charges to each specific sub-account. The payroll sheets, after verification at the end of the week, are recapitulated and this recap is covered by an u 194 FIELD ACCOUNTING CONTROL invoice which as previously explained, is entered on the Invoice and Payroll Register, and distributed to its proper columns the account number, these being found on the field checking list. The labor items are then charged to their respective sub-accounts in the Construction Record. A further discussion of the problems arising in the control of the payroll will be found in Part III, Chap. XVII. Plant Rental. When a contractor charges for plant DATE J.9 DAILY CHECK LIST X ) NO. HRS. RATE AMT. V V V y ^_ FORM 35. Date. TIMEKEEPERS DAILY DISTRIBUTION Total 10.1 11.2 12.3 13.4 14.5 15 6 16 7 17.8 189 = FORM 36. rental he assumes all the expense to keep it in efficient working order. Any repairs or labor through break down or otherwise is an expense to the contractor; but the labor, fuel, etc., used to operate the plant is an expense to the owner. The owner pays for the use of the plant to the extent of the rental in addition to which he must also pay the cost of operating it. This cost is reflected in the weekly payroll and supplies paid for by the general contractor, and for which he is reimbursed by the owner. HANDLING FIELD PAPERS 195 Freight Bills. The consignee usually pays all freight bills, and when the material is bought f.o.b. shipping point, freight is treated as an increase in the cost shown on the invoice. If the order is placed f.o.b. Site or Destina- tion, the freight bill, when paid, is charged in the suspense Account Section at the back of the Accounts Payable EMI'LOYIUEXT .< 10 Home Emp. ,Vo._ Date employed. JSbttc !HOUR _ DAJL Bate for overtime MONTH Approved: Works Superintendent. FORM 37. CHANGE OF RATE Timekeeper: Hn. ftwtii ntf(|n ( presentl New occupation i rate \ ( new Chan w e effective irate) Approved: Worki Superintendent Contractor's Superintendent FORM 38. ledger to the debit of Consignor's Freight, and the amount is deducted from the face of the vendor's invoice. When the invoice is entered in the Register, the freight deducted is entered to the credit of Consignor's Freight to clear the amount before debited. Recording Salvaged Material. On a big job a quantity of material is usually left over. Such material is salvaged for the owner's credit, and adjusted in the following manner: 196 FIELD ACCOUNTING CONTROL A physical inventory is made on the ground and framed into a journal entry at cost value, debiting suspense Inven- tory Account, and crediting the various stores accounts heretofore charged. If any of this material is subsequently sold the value is charged to an account Collection Bills Receivable. To the statement sent the owner, a " Report of Salvage Sales" is attached showing the total cost of the DISCHARGE CHECK Piy w Up to mr 101 Joh Foreman FOHM 39. NO DATE 101 PAYEE h E o RECEIVED FROM L.K.COMSTOCK a co. H < M H H X S UABOR-NO. HOURS DOLLARS CTS ?s a " EXPENSES * TOTAL s. W a i SIGNED o H FORM 40. material as against the amounts of the Collection Bills; the difference is the loss on sales. Contract Liability of Owner. The contract liability of the owner to the contractor is recorded on individual accounts for each, these amounts gradually being absorbed by memorandum postings of the requisitions paid on account. As all the requisitions are registered, vouchered, and classed as invoices, it is obvious that when they are so treated, the cost is properly charged as it accrues. This HANDLING FIELD PAPERS 197 RELEASE BY SUB-CONTRACTOR PROJECT NO WHEREAS, on day of , 19. . . , contractor under contract with the General Contracting Corporation for general construction work, entered into a contract with , sub-contractor, for the performance of certain work, and WHEREAS, the said sub-contractor has demanded final payment under the terms of said sub-contract; NOW, THEREFORE, in consideration of the sum of $ , the receipt whereof is hereby acknowledged, said sum being the final payment to which said sub-contractor, is entitled under his contract with said contractor, he hereby remises, releases and forever dis- charges said contractor, and the General Housing Corporation, his-its- their heirs, executors, administrators, successors or assigns, of and from all payments, claims, demands, actions or liability of any kind whatso- ever in law or equity which said sub-contractor, had or has, or which said sub-contractor his-its-their heirs, executors, administrators, suc- cessors or assigns hereafter may have against said contractor or the General Contracting Corporation, for, upon or by reason of any matter, cause or thing contained in said agreement, or any amend- ment or supplement thereto, or done or omitted to be done thereunder, or for any other cause whatsoever arising out of said agreement or otherwise, reserving however unto the contractor and the General Contracting Corporation all rights which they or either of them may have under said sub-contract. IN WITNESS WHEREOF, , sub-contractor, has executed this release this day of , 1919. WITNESS: Sub-contractor. FOKU 41. 198 FIELD ACCOUNTING CONTROL SCHEDULE OF SUB-CONTRACTS Term 43 Location Phila, Pa. Contract No. 1009 General Contractors L.K. Comstock & Co.,Inc:7s"ew York Period Ending July 31, 1919 Account Symbol Name Nature of Work Contract and Extra Orders Contractors Compensation tal Balance Plant Rental Fee Tc M.I Andrews i Wilson Sheet Metal S57 700 $ 525 S 5 9CO S64 125 152 Cost to Dts 20 000 175 2 000 22 175 Unfinished 37 700 350 3 900 $41 950 Thomas Roofm.- Co. Slag Roofing 26 500 Lum pSum 26 500 15.6 Cost to Data 13 OOU 13 (XX) Unfinished 13 500 13 500 J.W.Goddard Corp. Water Lines 55 OCO 500 6 000 61 500 W Cost lo Dat 15 000 100 1 200 16 300 DnflnUhed 40 000 400 4 800 45 JOO R.J.Uarri.on *. Bra. Heating 110 000 700 14 000 124 700 20 Cost to Data 70 000 450 9 000 79 450 Unfinlbhtd 40 000 250 5 000 45 250 Anderaon Corporation Plumbing Mj 000 900 15 000 295 900 19 Cost to Data 150 000 400 8 000 158 400 UnfinisLed 130 000 500 7 000 137 500 Haiti J iiuLler, Inc. Lighting 70 000 700 7 000 ii 700 21 Cost to Date 40 000 400 4 000 44 400 Unfinished 30 000 300 3 000 33 300 P Lakej i Bro. Brick TOU (XX) 1 400 30 000 132 400 22 Colt to Data 55U 000 2 000 25 000 577 JOO Lnfiniebid 150 000 400 5 oeo 156 400 T RCroiilej i Co. Painting 65 000 750 7 300 73 000 25 1 Coit to Date 42 000 300 4 000 46 500 Unfinished 23 000 250 3 300 26 550 T.U Crosslej & Co* Papering 25 000 Lu*u pbun 25 000 25.3 Cuat to Date 15 000 15 000 Unfinlihed 10 000 10 OCO J. VKC.Thompeon Plaetcrng 190 000 400 10 000 200 400 18.7 Colt to Dan 160JOOO 260 6 000 166 200 Unfinished 30 000 150 4 ouo 34 150 National Paring Co. Paring 125 000 > umateJ nitP let 125 000 31.4 Cost to Dale 40 000 40 000 Unfinished 35 000 85 OCO 8un.rn.ty Totil Comravll 1701 200 6 875 95 200 1806 275 T xal Coat to Date 1.111 000 4275 59 200 1.17S 47J 1 Balance bciar Total Coo act LUL.il it j HI 2v,0 2 600 36 000 627 SCO FORM 43. HANDLING FIELD PAPERS 199 value, set up as a side record, is further reduced by any modification of the price accepted by an order of deduction which, of course, never reaches the cost. As noted before, all preparation of cost which constitutes the supporting data to complete a voucher, is performed by the contractor's office force, which force is engaged by the contractor on the approval of the auditor. As one can readily see this does not reduce the auditor's duties of keeping control over both the work of the contractor's accounting force and the records of the disbursing agent. Condensed Sequence of Operation. The procedure out- lined in this and the preceding chapter can now be condensed into the following sequence of operations for material charges : 1. Placing the order with the vendor. 2. Receipt of bill of lading and freight bill. 3. Receipt of invoice from vendor. 4. Verify extension of invoice. 5. Check invoice against order. 6. Post invoice to Accounts Payable Ledger. 7. Affix account symbol to be charged. 8. Have cost engineer or field auditor approve of symbol affixed. 9. File in alphabetical order for invoices incomplete. 10. Make out receiving ticket when goods are received. 11. Withdraw from incomplete file and attach receiving ticket, then file in alphabetical order for invoices complete and unpaid. 12. Withdraw from file when ready to pay, and hand over to field auditor who signs, and then secures the approval of works superin- tendent and contractor's representative. 13. Enter on Invoice and V.C. Register giving it a number. 14. Return original to auditor to voucher and pay. 15. Post duplicate to C.C.R. 16. File duplicate in complete and paid file in numerical order. 17. Check entries in Construction Cost Record made from duplicate invoices, against entries in Invoice and V.C. Register, and if found correct foot both books. 18. Enter check number in Invoice and V.C. Register against the bill liquidated. 19. Enter check number in Accounts Payable Ledger against bill liquidated as shown on the Invoice and V.C. Register. 200 FIELD ACCOUNTING CONTROL 20. Post total construction cost to date and the detail of invoices paid in the combined Cash and Ledger Journal and make out state- ment of expenditures to be sent to owner. The sequence of operations for the labor items is as follows : 1. Check total hours against time sheets for each day. 2. Verify the extensions and footings of each payroll sheet. 3. Check footing as shown in each payroll sheet against the recap. 4. Add the unclaimed of previous payrolls paid, and deduct the unclaimed pay of the current payroll. 5. Cover by a bill for the net payroll, and treat as an invoice 6. Enter on Invoice and V.C. Register giving it a number then Voucher. 7. Post in Construction Cost Record to an account known as Unadjusted Labor Charges. 8. When the weekly distribution comes in, charge to the sub- account symbols as shown, and clear Unadjusted Labor Charges with a credit, which should be the total charged to the sub-account symbols. CHAPTER XVI MONTHLY REPORTS TO OWNER Nature of Report. As explained in a preceding chapter, at regular intervals, and usually at the end of the month, a report is sent to the owner giving particulars of all expen- ditures to date. The statement and schedules presented in this chapter with interlocking figures, are taken from actual practice and consist of the following: 1. Statement of construction costs and cash advanced and disbursed. 2. Summary of general or main group accounts. 3. Schedule of items held in suspense. 4. Schedule of pay lists covering vouchers liquidated during the month, less collections made. 5. Transcript of control accounts and trial balance showing reconcilia- tion between the charges and credits. In addition to the foregoing schedules, the report should also include a schedule of the specific or detailed costs taken from the detailed cost accounts in their order of classification; but as such a schedule runs to several foolscap sheets and consists merely of the detail of the general group accounts, it is not here presented. The schedules to follow are sufficiently illustrative of the method of drawing up the report and of the relationship of the figures and accounts to each other. Statement of Construction Costs. This statement is a summary of all costs which have gone into the construc- tion both direct and as overhead expense. It is thus a summarization of the exhibits and schedules to follow. The first section of this statement consists of the summary figures of the total costs to date. The second section shows the total cash disbursed, plus any unpaid vouchers 201 202 FIELD ACCOUNTING CONTROL which are in the costs and any material received by transfer from some other source of supply than vendors, such as the store room of the owner or some other project he is operat- ing. Such transfers are credited according to their source. The sum total of the above is reduced by the total collec- tions made which is debited to the owner. (See Treasurer's Control Account to follow $23,898.75 + $4,063.65 = $27,962.40. This amount, deducted from the total dis- bursements gives the " Total Costs" as shown on the statement. Field Construction Accounts: Specific Accounts (per schedule "A") $1,565,417.34 Suspense Register (per schedule "B") 27,928.88 Total Construction Costs entered 1,593,346.22 Consignor's Freight paid but not yet deducted (per schedule "D") None National Housing Company "Field Staff" 8,750.00 Total all costs 1,602,096.22 Disbursements 1,616,302.62 Vouchers approved and entered, but not paid 3,500 Add: Value of material received from other projects. 10,256.00 1,630,058.62 Deduct: Cost of material sold, or transferred 27,962.40 Total Costs 1,602,096.22 Obligations not paid nor entered Unpaid invoices on hand (per schedule "C") 10,250.62 Unclaimed Wages 176.00 Total 10,426.62 Contingent Liabilities Field orders (per schedule "E") approx. value 3,750.29 Other than field (per schedule "F") approx. value. . . 1,767.96 Total _ 5,518.25 Cash Statement Deposits 1,650,000 Disbursements as above 1,616,302.62 Balance on hand _ 33,697.38 1,650,000 1,650,000.00 Certified correct as to total disbursements, Disbursing Officer Certified Correct, Field Auditor. MONTHLY REPORTS TO OWNER 203 A memorandum record is made of unpaid obligations that have not been entered and also of any obligations considered a contingent liability of the owner, such as unfilled field orders, etc. A cash summary is given at the bottom of the statement showing the advances made to the field agent by the owner and the total disbursements, the difference being the cash on hand. The statement will be found on page 202. Main Group and Suspense Accounts. Schedules A and B, which make up the total construction costs and which are the first entries on the preceding statement, are drawn up as shown below. The "Suspense Register as per Schedule B" summarizes (1) the cost value of unassigned material, (2) debit memos awaiting ultimate disposition, (3) loss on the sale of material at a price below cost and (4) uncollected bills for material sold as salvage which are credited to the various material costs and charged to suspense pending their payment. When paid the receipts are applied as a credit to the total disbursements. The salaries of the field accounting staff are added to these two classes of cost, making up the total cost. Analysis of Pay Lists. This is a schedule of the pay lists forwarded to the owner during the month with copies of the vouchers liquidated attached to each list. The schedule shows the difference between the actual disburse- ments made and the amount of collections received by the agent, making it a composite record of receipts and dis- bursements in connection with the building operations. The schedule will be found on page 205. Transcript of Ledger Control Accounts. In the tran- script of the control accounts operated by the field auditor the balance of each account at the beginning of the month is shown to which the charges and credits for the current month are added as given, will be found on page 206. 204 FIELD ACCOUNTING CONTROL Account Symbol Account Labor Material Total 10 Overhead 51,949 15 26 620 97 78 570 12 11 Preparation of Site 20 327 22 32 029 74 52 356 96 12 13 634 26 13 634 26 13 Masonry 172,649 35 231 818 10 404 467 45 14 Carpentry 151,055 55 172 243 04 323 298 59 15 Roofing 3 861 32 21 214 33 25 075 65 16 Sheet Metal Work 6,102 96 12 963 99 19 066 95 17 Iron Work 676 35 15 860 48 16 536 83 18 Plastering 57 705 51 26 771 94 84 477 45 19 53 868 54 76 933 20 130 801 74 20 Heating 31,962 92 45 111 52 77 074 44 21 Lighting 13 985 39 13 322 99 27 308 38 22 Flooring 19,239 48 22 538 19 41,777 67 23 Hardware 47 50 11 062 35 11 109 85 25 Painting and Paperhanging 29,164 48 17 865 33 47 029 81 28 Fences 6 074 95 9 371 67 15 446 62 29 Landscaping 14,12530 4 664 83 18,790 13 30 Cleaning Up 9,504 55 176 20 9 680 75 31 4,629 78 8 393 84 13 023 62 32 Concrete Curbs and Gutters 47 60 221 76 269 36 33 Cement Work 17,077 69 10 126 39 27 204 08 42 216 27 37 962 50 80 178 77 Water Lines 17,085 01 11 162 27 28,247 28 43 Parks 6,213 14 13 777 44 19 990 58 Total Specific Accounts 743,204 27 822 213 07 1,565,417 34 Suspense Account Schedule "B" Collection Bills Receivable. . . . 10 976 42 Prepaid Freight 176 20 Loss on Sales 2 652 50 Unadjusted Debit Memos 42.50 10.119 Non-expendable Items, Inventory 1,405 27 13.22 Mason's Materials, Inventory . . . 622 55 13.24 Cost Stone, Inventory 176.50 14.1 Lumber, Old, Inventory 3,700.42 14.1 Lumber, New, Inventory. . . . 2,795 40 14.2 Millwork, Inventory 1,622.76 15.2 Slate Roofing, Inventory 225.00 16.1 Sheet Metal, Inventory 976 32 17.2 Iron Work, Inventory. 1,477 96 17.5 Wire, Iron and Steel, Inventory 27.92 18.2 Plaster Material, Inventory 176 97 19.1 Plumbing Material, Inventory 225.00 20.2 176 92 21.1 Electrical Supplies, Inventory 324.77 23.2 Hardware, Inventory 147 50 Total 27,928.88 MONTHLY REPORTS TO OWNER 205 Date Net Amount Credit Collection Bills Debit Disburse- ments Dec 1 P L Field 54 207 1,742.97 15642 1 89939 2 8 4,706 95 42 19 4 749 14 3 9 1,496.45 7791 1 574 36 4 210 1,792.50 500 2,292 50 5 1 . 505.27 2246 527 73 6 2 1,476.92 177.92 1,654 84 8 3 1,333.42 1,333.42 g 4 2,700.95 150.27 2,851 22 10 5 1,250.46 92.19 1,342.65 11 6 1,792.88 27.42 1,820.30 12 7 1,477.96 150.96 1,628.72 13 8 906.47 177.49 1,083.96 15 9 1,227.92 227.50 1,455.42 16 220 5,470.91 5,470.91 17 1 2,786.71 2,786.71 18 2 2,223.47 92.33 2,315.80 19 3 1,966.32 27.91 1,994.23 22 4 1,607.70 422.50 2,030.20 23 5 1,946.85 1,500.96 3,447.81 24 6 1,791.56 27.42 1,818.98 26 7 1,347.92 1,347.92 27 8 340 50 390 30 9 1,500.77 140 1,640.77 31 230 1,692.27 1,692.27 Dec 15 P L General 41 45,085.60 700 4,063.65 49,149.25 31 42 650 1,350 Total Disbursements 50,49925 Total Deductions 4,063.65 Net Total.. 46,435.60 Approved, Certified Correct, Disbursing Agent. Field Auditor. 206 FIELD ACCOUNTING CONTROL AUDITED VOUCHERS PAYABLE 11/30/20 Totals 1,548,096.97 11/30/20 Totals 1,548 096 97 12/31/20 Disb. Agent 50,499.25 12/31/20 Funds. .". 53,999 25 12/31/20 Balance 3,500 1,602,096.22 1,602,096.22 12/31/20 3 500 TREASURER'S ACCOUNT 11/30/20 Totals . . . 23,898.75 11/30/20 Totals 1 600 000 12/31/20 Suspense C Bill .... 4,063.65 12/31/20 50,000 12/31/20 Balance 1,622,037.60 1,650,000 1,650,000 12/31/20 Balance. ... 1,622,037 60 DISBURSING AGENT ACCOUNT 11/30/20 Totals 1,600,000 11/30/20 Total 1,565,803.37 12/31/20 Treasurer 50,000 12/31/20 And Vo. Payable. . . 50,499.25 12/31/20 Balance 33,697.38 1,650,000 1,650,000 12/31/20 33 697 38 SPECIFIC CONSTRUCTION ACCOUNT 11/30/20 Total 1,512 768 09 12/31/20 1 565 417 34 12/31/20 And Vo. Payable. . . 52,649.25 12/31/20 Balance 1,565,417.34 SUSPENSE ACCOUNT 11/30/20 Total 31,992.53 12/31/20 Coll. Bill 4,063 65 12/31/20 Balance 27,928.88 12/31/20 Balance 27,928.88 GENERAL EXPENSE 11/30/20 Total 7,400 12/31/20 8,750 12/31/20 And Vo. Payable.. . 1,350 12/31/20 Balance 8,750 GOODS RECEIVED FROM OTHER PROJECTS L 2/3 1/20 Balance 10,256 11/30/20 Total 10,256 12/31/20 10,256 TRIAL BALANCE Disbursing Agent % 33,697.38 3,500 Specific Construction % 1,565,417.34 1,622.037.60 Suspense % 27,928.88 Goods Reed. Other Projects.. 10,256 General Expense % . 8,750 1,635,793.60 1,635,793.60 PART III CHAPTER XVII PAYROLL PROBLEMS Weekly Payroll. In a big construction project employ- ing a thousand or more men many problems arise in the handling of the payroll and the difficulties can only be solved by systematic attention to detail. The suggestions to follow are taken from the author's experience. The payroll names should be grouped as nearly as possi- ble according to the three following principles: 1. The nature of the work performed. 2. The distribution of cost. 3. The order of the employee's responsibilities. The badges showing the person's employment number should be given out in consecutive order of hundreds and should distinguish one class of work or occupation from another. The numbers should be grouped on the payroll by occupations, so that when checking and recapitulating no further distribution is required. In this way posting is reduced to the minimum for each class of cost. At the peak of a big job, the weekly payrolls at times may run to a hundred or more sheets. Each sheet should be footed separately, and footings should not be carried forward. Each sheet is numbered each week, beginning at 1, and continued in consecutive order to the last sheet. The footing of each sheet is assembled on a "Summary of Payroll" for the week and the individual sheets are con- sidered as invoices numbered from 1 up. The time entered on the weekly sheets is taken daily 207 208 ACCOUNTING FOR CONTRACTORS from the " Daily Time Checking Sheets," described in the preceding chapter. At the end of the week the weekly sheets are cross added to get the total time of each employee for the week. The rate of pay per hour or day is then entered, after which each line is extended and the employee's wage is entered in the "Amount Due" column. This column is then footed for the total wages on each sheet only, after w T hich the totals of all sheets are recapitulated on the weekly summary. Handling Payroll Receipts. The receipts taken from employees should be on a light card and should state that the amount paid is in full settlement of the wages to date. The date should be put on with a rubber stamp, and the only writing on the envelope should be the employee's number and the amount due, no name being necessary, as this is secured when the receipt is signed; moreover the name follows the number on the payroll sheet. The receipts are given out by the foremen on the job each Friday to the men, who sign them and when they receive their pay envelopes, drop them through the slot of a box kept under lock and key. The paymaster makes up the payroll, and hands the money to the men, but the auditor should collect the receipts for the money paid. When the pay- master hands him the unpaid envelopes these and the receipts collected should equal the payroll. In this way collusion is prevented and there is no possibility of padding the payroll. The subsequent payment of any unpaid envelopes is accounted for by a supplemental statement of unpaid wages attached to each weekly payroll, listing in one column the items still unpaid, and in another those paid and the week they apply to, for which there must be a receipt. The balance of this statement is the total unpaid wages to date. If there are no envelopes left at the end of the job the statement becomes automatically closed. The contractor's representative (who is usually the field auditor) should assort the receipts he takes from the box in PA YROLL PROBLEMS 209 their numerical order, so that he can check them against the payroll when it is turned over to him by the paymaster, which is usually on the Monday following the Saturday payday. The payroll receipts are put away in weekly packages after they are arranged in numerical order of the employ- ment number. On the list showing the unpaid items on hand as they are paid a notation of the date should be made against each amount. If any remain unpaid at the end of the job they are credited to the cost and re-deposited. Audit of Payroll. In the auditing of the payroll, first verify the extensions, then the footings, and if found correct see that the footings are properly transcribed to the recap. Short cuts save time and effort when checking the exten- sions, and the writer would suggest the following procedure in their verification. First verify the cross addition of the time in days making up the total hours for each workman each week. In a great many groups the hours are the same and employees receiving the same rate of pay are tabulated together. Add the first line of the group and a glance at the entries that follow will show if there is any variation; if they are the same, tick each total for each employee and foot the amounts paid in each group. This total divided by the rate will give the total hours in the group, which if found equal to the footing of the total hours is proof of the correct- ness of each individual extension. When the total for each week in a group is the same as that on the first line of the group, by using the number of lines as a multiplier of the total for the week on the first line, the resulting figure will be the total hours for the group. Putting up the Money. Some paymasters count the money drawn from the bank while others accept the bank's count as correct; the writer relied on the bank's count for 6 years without finding a difference and his confidence in the bank's accuracy resulted in just so much time saved. In handling a big payroll the filling of the envelopes can 14 210 ACCOUNTING FOR CONTRACTORS be done rapidly and accurately by two men working together as follows: First stack up all bills in the following order: Top row $100, 50, 20. Bottom row $10, 5, 2, 1. One man counts the money and hands it to the other who puts it in the envelope. When all the envelopes are filled, there should be no bills left. Then spread all the specie out in piles of $.50, .25, .10, .05, .01, and do as with the bills. If there is no money left over, it is an assurance of the correctness of the count. By doing these two operations separately confusion is prevented, as the clerks are occupied with one thing at a time, first counting scrip and then specie. Denominating Machine for Payroll Work. When the payroll for a week contains the names of 2,000 or more employees, one of the most tiresome and time absorbing duties is to determine the denomination of the bills and specie necessary to make it up. There is a machine on the market the International Money Machine which is compositely an adding and denominating machine. The same operator who writes out the pay envelopes adds their amounts on the machine which prepares a ribbon showing the amount of each envelope and the total of all of them. On a side attachment a revolving index gives the denomination, as follows: Bills $100, 50, 20, 10, 5, 2 and 1. Specie $.50, .25, .10, 05, .01. The machine thus indicates the amount in dollars and cents required for all the envelopes but not the total number wanted. When these amounts are entered on the denomi- nation slip, which some banks supply free of charge, their total will equal the total made from the envelopes as shown on the ribbon. This machine is accurate, efficient, labor PA YROLL PROBLEMS 21 1 and time-saving, and will pay for itself in any active business in one year; it is safe to say it would have a salvage value of 50 per cent of cost at the end of 5 years of constant service. Daily Time Checking Systems. As explained in the preceding chapter there are several ways of checking the time in and out on a big construction job, such as the brass check system, time clock, card system, etc. In the case of the former, the man when going on the job drops his check (which bears the number of the employee as recorded on his employment card) in a box placed in a convenient location for that purpose. All the checks of those on the line constituting punctual time which have been turned in, are assorted and hung on a hook which bears the same number as the check. These checks are then made into a list for the field checker, showing the numbers of the men who have reported for the day's work. At about 10 a.m. and 3 p.m. the field checker locates these men at work, and when he finds them, he checks their number on the list. Men that report late have an immediate notation made on a sheet for that purpose, and the same is done with those that go off early. The " Field Checking Lists" if found to conform to the brass checks turned in, are then used to make up the payroll each day. After this detail has been performed the tune clerk turns the brass checks over to each foreman, who distributes them to the men under him at about 4 p.m. each day so they may be used to check in the next morning. The time clock and card system is operated in the follow- ing manner : Each man has a weekly time card showing his number, name, the amount earned for the week, the date the week .ends and a place for his signature. This part of the time card is detachable, and acts as a receipt of payment for the full time each week, which is noted daily on the part of the time card from which it is detached. These cards are racked in the numerical order of the man's employment number each morning for every man who 212 ACCOUNTING FOR CONTRACTORS passes through a particular booth, as on a very large job there may be 10 or more booths. The timekeeper takes the card from the rack, and hands it to his assistant to whom the man reports. The man then takes the card, puts it in the clock and punches the time on and hands it back to the assistant timekeeper. When all the men have passed through the cards are assorted and re-racked in another rack, which is the " Out Rack." The field checker's list must agree with the cards as shown in the Out Rack, and the lists are used to enter the daily time to each man on the payroll. The clock registers the time for a full working day in blue ink figures, and late, or overtime, in red. On Thurdsay of each week these cards are assorted in the order of their entry on the weekly payroll, and compared with the entries for the week ending Wednesday, made to it from the field checker's lists. At this time the time card shows the amount due, and total hours on both the stub attach- ment and record of time, which is the amount recorded on the payroll. On Friday these stub receipts are distributed to the men on the job, which they sign and drop in the box when the paymaster hands them the envelope containing their weeks pay. As before stated these receipts and the unpaid envelopes on hand on Monday, should check out every name and amount on the payroll. The " Daily Tune Checking Sheet" however as described in the preceding chapter eliminates all the handling of detail connected with other systems, and besides is more economical and efficient. It gives a perfect working sheet record of each man's daily time and is the system recom- mended by the writer. CHAPTER XVIII CONTROL OF EQUIPMENT Equipment Card Ledger. In the contracting business, equipment forms an important part of the working assets. All machinery used in actual construction work exclusive of small tools, is classed as equipment. The value of each unit of equipment is recorded on a card and this card ledger is controlled on the general ledger by the account Machinery and Equipment. Each unit of equipment should be tagged or in some way marked in a conspicuous place by a register number, and an "Equipment Register" should be kept. The entries on the register are numbered consecutively, and when equipment is purchased it is entered on the register and given its line number. After the number should be stated : (1) the kind of equipment, (2) from whom purchased, and (3) the cost. A card is also made out giving these particulars, and filed in the order of the equipment classifica- tion number, which filing method will be referred to again. The card inventory of equipment is charged for the cost of acquisition and any replacements, and credited for any parts discarded or sold. The sum of all these entries is posted to the General Ledger controlling account. Thus the balances of all equipment cards should equal the book value shown on the General Ledger. Keeping Track of Equipment in Use. When equipment is rented for use on a job for which the contractor receives a fixed fee, the fee should be large enough to compensate him for the cost of getting the equipment to the job, the labor of setting it up, repairs to keep it efficient, depreciation for wear and tear, plus a fair return as interest on the cost of the investment. A method of keeping absolute control over all equipment on hand and at work is as follows: Keep the inventory 213 214 ACCOUNTING FOR CONTRACTORS cards in their proper numerical order in two distinct files, which would be known as File 1. Equipment "Idle." File 2. Equipment "Working." The front of the cards should be designed with margins to provide for the amount of charges for cost and replacements, with a credit column for any parts discarded or sold. The back of the cards should be ruled in two sections, left and right. The left hand section is to record the date the equip- ment is sent to the job, and the right hand section is to record the date it is withdrawn from the job, the date and job number being entered in both sections when making the record. CARD FORMS Front Kind of Equipment Classif. No. 112 "Steam Shovel" Unit No. 1 Date Debit Amount Date Credit Amoui 19 20 1 1 Accts. Payable. . . . 10000 Back Delivered to Date Job Number From Date Job Number To 19 20 19 20 2 10 267 Store 7 15 267 268 Room 7 15 268 267 12 11 268 Store Room Returned by CONTROL OF EQUIPMENT 215 At the time of delivery to the job the equipment card is withdrawn from File 1 and after the job number and date of delivery have been entered in their proper spaces the card is placed in File 2 in its numerical order. When the equip- ment is returned, the card is withdrawn from File 2, the date and job number are entered in the right hand section and it is replaced in File 1 in its numerical order. If the equipment in use is not returned to the contractor's yard or to the store room when one job is finished, but is transferred direct to another job, an entry should be made in the right hand section to show the date and new job to which it has been transferred, and the same date and new job number are entered in the left hand section. This method of control not only shows the location of all equipment at all tunes, but it also serves the purpose of distinguishing between equipment idle and working. This is useful information when determining the amount of depre- ciation reserve to set up each fiscal period, as idle equipment, if properly cared for, does not depreciate so rapidly as equip- ment in use. Therefore the depreciation charges for idle equipment would be proportionately reduced. An addi- tional feature of this method of control is that the date delivered and returned, as recorded on the delivery cards, might form valuable information should the contractor be charging plant rental on the basis of time in days, thus fur- nishing a record of the exact number of days the equipment is in use. Equipment should only be delivered to the job on a written order signed by the foreman in charge who should also be held accountable for any shortage if parts are missing or the equipment returned is less than that delivered. Classification of Equipment. If the items of plant and machinery owned by the contractor run into hundreds the equipment classification number should be governed by the Dewey Decimal system as follows: The numbers to the left of the decimal point are for the kinds of equipment, and the classification begins with No. 1. 216 ACCOUNTING FOR CONTRACTORS In drawing up the classification, the first thing to do is to number the different kinds or types of equipment. The numbers to the right of the decimal point are allotted to the units of a particular classification. Thus if there are five steam shovels, and their classification number is 112, then the five shovels would be numbered and classified in the files as follows: 112.1, 112.2, 112.3, 112.4, and 112.5. If der- ricks are classified under the number 4 and there are three of them in the inventory, their cards would be numbered 4.1, 4.2 and 4.3; and if a new derrick is bought it would be given the number 4.4, and so filed. There is of course no limit to the possible expansion of the system. In drawing up the scheme of classification take a small pad, and on each sheet write the name of the equipment, such as Steam Shovels, Derricks, Elevator Hods, Wheelbarrows, etc. When the equipment is covered by a slip for each kind, assort the slips in their alphabetical order and number them beginning at No. 1. Then draw up a typewritten list to be used as a reference to the card files of equipment idle and working, as they are filed in their order of classification. The list serves as a perfect index to the inventory. Charges for Plant Rental. When the contractor owns the equipment and includes its rental in the contract price the charge for plant rental should include transportation, the interest on its cost, and depreciation for the time of service, plus the cost of repairs to keep it efficient. Some contractors charge for the value of the plant installed, and credit the job with its appraised value when released from service, the difference between these two values, added to the cost of repairs and interest, constituting a charge to the job. This charge should equal that of the above method for determining this cost. When the plant is hired, the rental charge should equal the cost of wear and tear and interest on its cost for the time of service, which amount should be spread over the unit costs involved in the estimate. It would be safe in most instances to compute the salary cost of foremen in charge of construction at 10 per cent of CONTROL OF EQUIPMENT 217 labor, and that of all general expense at 6 per cent of labor. The estimate should be increased a certain percentage to provide for contingencies which may arise from changes in the price of labor and materials, inefficiency of workmen, strikes, etc. By comparing past performance, if records are available, with present requirements it would be easy to deter- mine a percentage figure to cover unforeseen contingencies. Small Tools. A record of the small tools should be carried in the store room and controlled on the General Ledger by an inventory account. When tools are bought, the cost is the amount to be charged to inventory, and when they are sent to a job, a store room order should be issued and signed by the foreman, which record is the basis of an expense charge to the job and a credit to the number of the Tool Account. When the contract is finished, any tools that have not outlived their usefulness, may be appraised, and their value credited to the expense of the contract and charged back to the Tool Account by the issuance of a transfer ticket, the difference between the cost and appraised value being the net expense charged to the contract. It is not, however, the proper procedure to charge the reduced value of the tools back to the inventory account from which they were withdrawn as the inventory account then includes a com- posite value for old and new tools. A better plan is to carry on the Stores Ledger two tool accounts under the titles of Tool Account New, and Tool Account Old, and to store new and old tools in separate compartments. No reserve for depreciation is set up on the general books for these accounts, as the difference in cost and appraisal value is covered by the charge for tool expenses. CHAPTER XIX PREPARATION OF ESTIMATES AND BIDS Creation of Contract. It takes two to make a contract, and in every construction contract the contractor agrees to perform work for which he is to receive from the owner a certain sum of money. The usual steps leading to and completing a contract are as follows: 1. Issuance of plans and specifications. 2. Invitation to bidders. 3. Engineer's estimate. 4. Acceptance of the bid. 5. Signing the contractural agreement. 6. Performing the work. 7. Final settlement on approval by the architect. 8. Release of the contractor by the owner. The specifications are a description of the work to be performed under a contract, and serve as a key to the plans as drawn. They control the plans in condensed forms, and each feature should be connected to the plans by a symbol which must appear on both. The contract specifies the nature and method of payment to be made to the contractor, and these details should be noted on the ow r ner's account so that collections can be made accordingly. In some contracts the contractor has to give a surety for faithful performance of the work, which guarantee is usually assumed by a bonding company. The amount of the surety varies, but it should be sufficient to cover any loss to the owner should the contractor default in his obligation. The premium is part of the cost of the contract. The time for completion may be guaranteed by the surety, which may 218 PREPARATION OF ESTIMATES A\D BJD8 219 also include a forfeiture clause penalizing the contractor for exceeding the time allowed to complete; or a bonus may be paid to the contractor for any saving of time inside the limit of that allowed. Elements of Cost. In the preparation of estimates and bids for contract work the following five elements of cost require careful consideration. 1. Preparatory Expense. 2. Plant Supplies and Expense. 3. Materials. 4. Labor. 5. Superintendence and General Expense. 1. Includes clearing, right of way demolition, salaries of the contractor's force on the site pending the beginning of the actual operations, setting up plant, advance receipt of materials, etc. This expense should be forecasted and included in the estimated unit cost. 2. Includes depreciation of machinery and tools, tem- porary structures, insurance of all property subject to fire loss, and used on the contract work, fuel, oil, etc., and any other items not contracted for. 3. Includes materials to be used for actual construction contracted for as invoiced; plus, freight in, labor handling, and cartage to site; also, reduction waste from cutting and fitting parts. 4. Includes skilled and common labor applicable to actual construction as per contract specifications. 5. Includes salaries and expenses of foremen, managers, bookkeepers, timekeepers, office clerks, field checkers, rents, legal fees, taxes, stationery, traveling expense, etc. Points to Watch in Compiling Estimates. The con- tractor when making a bid may place too much reliance on the cost of similar work in localities other than the one where the job is to be carried out. Rates of wages often fluctuate widely in different sections of the country; also, the specifications of engineers show considerable variation 220 ACCOUNTING FOR CONTRACTORS on different jobs. The contractor should see that his bid is not unbalanced, some items of the estimate being too high, and others too low. Also, there is little or no relation between the unit cost of large and small jobs. Finally it should be borne in mind that the contractor who is owner of his plant, has an economic advantage over a bidder who has to pay rental. A parallel performance is a good guide when making an estimate, but should not be conformed to item for item. Conditions are likely to differ greatly between one big construction job and another. Therefore each item of the estimate should be carefully computed for the number of units required, so that when submitting the bid they will be neither over nor understated. Ample provision should be made when making the esti- mate for all costs other than those of the actual materials, labor, machinery and supplies used on the job. While it is important not to overlook these items, at the same time, it is a bad practice to load the construction costs with an excess number of units to take care of any omissions of non-construction costs. The estimate should be drawn up so accurately that it will stand the closest inspection. There is then less likelihood of the bid being rejected. Most contractors are so familiar with the details of any work they undertake, that they can instantly discover an excessive over- or under-estimate compiled by the engineer. Therefore a bid should never go out before first being sub- mitted to the contractor for his scrutiny and approval. The responsibility for any error would then partly rest on him. A useful aid to accuracy and dispatch in drawing up estimates is a classified schedule of standardized costs for the various features of the work contracted for. Such standards are invaluable as a check on the estimates before submitting them, disclosing at a glance any omissions and thereby making it possible to render the bid complete in every particular. PREPARATION OF ESTIMATES AND BIDS 221 Determination of Plant Expense. When determining the plant expense a liberal allowance should be made for bad weather, late deliveries, break-downs, etc. Also time limit for performing the work, and the capacity of the plant to function within 80 per cent of the time should not be overlooked. When considering the capacity of the machines comprising the plant care should be taken to keep within the limit of the work they can perform. Ample allowance should be made for idle time occasioned by making repairs. Estimation of Profit. The final addition to an estimate of cost is the contractor's profit, and this is taken at a certain percentage of the constructive labor and material costs. There is no standard rate and whatever the per- centage it should be enough to cover the overhead expense of the contractor applicable to the contract, leaving a fair net return on the capital invested in his business. A solution of this is demonstrated as follows: Assume that a contractor does a business of $11,000,000 for a year on an invested capital of $2,000,000 on which he anticipates a net return of 10 per cent. If the overhead equals 8 per cent of the annual cost and includes officers' salaries, taxes, etc., and the construction cost is $10,000,000, the profit to be added to the whole cost of each contract would be 10 per cent as shown in the figures below: Net contract sales $11,000,000 Whole cost 10,000,000 Gross profit on cost 10 per cent. . . . Less Overhead on Cost 8 per cent . . Net Profit on cost 2 per cent $ 200,000 equal to 10 per cent on the invested Capital of $2,000,000. This shows that the contractor's overhead is equal to 8 per cent of the whole construction cost, and that it would take 2 per cent of this cost to provide 10 per cent net profit on the capital invested. The profit added to the 222 ACCOUNTING FOR CONTRACTORS whole cost must be 10 per cent to make the gross profit of $1,000,000 on $10,000,000 cost as shown on the proof. As this whole cost includes the 16 per cent foremen's wages and the general expense incurred on the contract and as the profit is measured by the labor material and other direct costs, the present worth value of the whole cost, when taken at 100 per cent, and divided by 116, will give the percentage of construction labor, material and other direct costs. By adding 16 per cent to this cost, it will equal 100 per cent of the whole construction cost. For example; 100 -5- 116 = 86.21 per cent and 86.21 X 116 = 100 per cent. The percentage of profit to be added, based on the direct labor and material cost that will equal 10 per cent of the whole cost, and be productive of an amount to provide for 8 per cent overhead and 10 per cent on the capital invested, is determined by dividing 10 per cent by the present worth percentage for labor and material costs of 86.21. Thus .10 4- 86.21 = .1160 per cent which is the rate to be added to the labor and material cost to return a gross profit of 10 per cent on sales, provide for 8 per cent overhead, and 10 per cent net return on the capital invested. CHAPTER XX MUNICIPAL CONTRACTS Proposals to Bid. Contracts entered into by a munici- pality are of two classes: (1) Supplies necessary to operate the various departments under municipal control such as schools, hospitals, parks, etc., (2) labor and material for construction work forming capital expenditures of the municipality. Vendors and general contractors are made cognizant of these contracts by means of advertisements in the daily newspapers. To enable those seeking the contract to bid intelligently, proposals for bids are prepared in the form of a contract, and the proposals must contain the following particulars : 1 . A statement that the bidder will furnish the bid to the department head issuing the contract, and make the bid on or before a certain day and hour named, enclosed in a sealed envelope. 2. A statement of the quantity and quality of the supplies or the nature and extent of service to be rendered as nearly as it is possible to estimate. The estimates supporting the bid are publicly opened at a time and place specified by the department head request- ing the proposal and the advertisement states the amount of surety required for the performance of the contract according to the specifications submitted. The specifications are made out on bid sheets on which the vendors give details of the prices at which they propose to furnish the articles. Each item to be supplied is entered on the bid sheet, and the quantities and the unit price are shown and extended for each separately. The municipal department, in making the proposal for 223 224 ACCOUNTING FOR CONTRACTORS contract bids, designates a certain day and hour to consider them, and in the interim, between the time they are received and the day they are to be passed on, they are placed in an estimate box which is under lock and key. At the appointed time they are taken from the box by the head of the department who issued the proposal, and read aloud before the officials who are authorized to accept the con- tracts. Any estimates which do not conform with the legal requirements are rejected, and those deemed to the best interests of the municipality are the successful bidders. At times, the specifications and proposal call for the sub- mission of samples to be delivered to the purchasing agent before the opening of the estimates so that their quality can be inspected and tested. Contract Guarantees. The bids must be accompanied by the consent of the guarantor of the contractor, for his execution of the bond as required by law should the con- tractor be awarded the contract. The chief municipal financial officer, who is usually the comptroller, makes final acceptance of the surety offered, and the proper enforcement of every contract made with the city rests on the shoulders of the officials endowed with such authority. If a contractor fails to perform the work according to the stipulations of the contractual agreement, the munici- pality usually takes the work out of his hands and has it completed by some other contractor. The cost of so doing is a charge against the delinquent contractor. Failure to perform the contract might arise from causes beyond the contractor's control, such as labor strikes, bad weather, etc. If the contractor, through no fault of his own, fails to complete the work within the limit of time allowed, the municipality may grant an extension. Municipal Contract Register and Accounting. All munici- palities operate contract registers showing the following: 1. Number of contract. 2. Date of award. 3. To whom awarded. MUNICIPAL CONTRACTS 225 4. Nature of work, service, or supplies. 5. Estimated cost. 6. Symbol of account to be charged or capitalized. 7. Amount accrued and due. The contracts are of two classes: (1) Expense Contracts and (2) Construction Contract. The former are liquidated from current funds as determined by the Municipal Budget, and the latter from funds realized from bond sales which are in the nature of permanent liabilities. The Appropriation Account for contracts, as estimated in the budget, is charged each month for the amount of contract obligations registered, and Contract Reserve Account Appropriations is charged and Audited Vouchers Payable credited and at the same time Available Cash Surplus is credited with the amount of vouchers registered and paid. As there are two classes of expenditure and they are made from separate funds, all receipts and expenditures are segregated accordingly. Receipts for Operating Expense are derived from the following sources and charged to Available Cash Surplus: 1. Current cash collections. 2. Departmental Accounts Receivable collected. 3. Receipts from licenses, permits, fines and forfeits. 4. Miscellaneous cash receipts. 5. Revenue bond sale receipts. 6. Special revenue bond sale receipts. Available Cash Surplus is credited with 1. Vouchers payable. 2. Payrolls payable. 3. Miscellaneous items. The first four items in the first list above constitute current funds. Capital funds are derived from bond sales from which the costs for construction, equipment, real estate, etc., are paid. 15 226 ACCOUNTING FOR CONTRACTORS Specimen Contract Bids. In the pages to follow several specimens are given of municipal contracts advertised in the daily papers under the caption " Corporation Notices:" FOR FURNISHING AND DELIVERING ROPE TO THE DEPARTMENT OF PLANT AND STRUCTURES IN THE BOROUGH OF BROOKLYN Sealed bids will be received by the Board of Purchase of the City of New York at its office, Room 526, Municipal Building, Manhattan, from 9 a.m. to 10:30 a.m. The time for the performance of contracts is from October 1 to December 31, 1920. The security required is thirty per cent of the contract amount awarded. No bid shall be considered unless it is accompanied by a deposit. Such deposit shall be in an amount not less than one and one-half per cent of the total amount of the bid. The bidder will state the price per unit as called for in the schedules of quantities and prices, by which the bids will be tested. The exten- sions must be made and footed up, as the bids will be read from the total, and awards, if made, made to the lowest bidder on each item or class, as stated on the schedules. Bids must be submitted in dupli- cate, each copy in a separate envelope. No bid will be accepted unless this provision is complied with. Specifications referred to in the schedules may be had upon applica- tion at Room 540 Municipal Building, Manhattan. Blank forms and further information may be obtained at the office of the Board of Purchase, eighth floor, Municipal Building, Manhattan. Board of Purchase FOR FURNITURE, ETC., NEW PUBLIC SCHOOL The time allowed to complete the whole work on each item will be sixty (60) consecutive working days, as provided in the contract. The amount of security required is as follows: Item 1 $2,000 Item 4 $ 600 Item 2 300 Item 5 500 Item 3 1,000 Item 6 1,600 The deposit, accompanying bid on each item shall be five per cent of the amount of security. A separate bid must be submitted for each item and separate awards will be made thereon. Blank forms, plans and specifications may be obtained or seen at the temporary estimating room, 6th floor, Brooklyn Branch of the Board of Education, 131 Livingston St. Brooklyn. Name Supt. of School Buildings MUNICIPAL COXTItACTS 227 ABANDONED CONTRACT Sealed bids will be received by the Department of Public Works, 10th floor, Municipal Building, Manhattan, until 10:30 a.m. on Mon- day, September 20, 1920, for furnishing all the labor and material required for the completion of the abandoned contract of Albert Smith & Co. for general construction and electrical work (exclusive of plumbing, heating, and ventilating work) for the erection and completion of the new Johnston Hospital, Borough of Brooklyn, The City of New York. The time allowed for doing and completing the entire work and for the full performance of the contract is one hundred (100) consecutive calendar days. The security required will be Two Hundred Thousand Dollars ($200,000). The deposit accompanying bid shall be five per cent (5%) of the amount of security required. The bidder will state one aggregate price for the whole work described and specified, as the contract is entire, for a complete job. Blank forms and further information may be obtained at the office of Jones & Williams, architects, 102 Fulton Street, Manhattan, where plans and specifications may be seen. Commissioner For regulating and repaving with Special Granite Blocks on present concrete Foundations of the following dimensions: Length on top, 7 to 11 inches. Width on top, 3% to 4>i inches. Depth 3% to 4M inches. The Engineer's estimate is as follows: 556 linear feet granite heading stones set in concrete. 580 linear feet cement curb. 80 cubic yards asphalt pavement (no maintenance). 11.142 Square yards special granite pavement, with joint filler of cement grout. 2 new standard iron covers and heads for sewer manholes. Time allowed sixty (60) consecutive working days. Security required, $25,000. Each bid must be accompanied by a deposit of $1,250 in cash or certified check to the order of the Comptroller of the City of New York. General Instructions to Bidders. General instructions to bidders on work to be done for, or supplies to be furnished to the City of New York are as follows: The person or persons making a bid for any service, work, material or supplies for The City of New York, or for any of its departments, bureaus, or offices, shall furnish the same in a sealed envelope, indorsed with the title of the supplies, material, work or services for which the 228 ACCOUNTING FOR CONTRACTORS bid is made, with his or their name or names and the date of presenta- tion to the President or Board or the head of the Department at his or its office, on or before the date and hour named in the advertisement for the same, at which time and place the bids will be publicly opened by the President, or Board, or head of said department and read, and the award of the contract made according to law as soon thereafter as practical. Each bid shall contain the name and place of residence of the persons making the same, and the names of all persons interested with him therein, and, if no other person be so interested, it shall distinctly state that fact: also, that it is made without any connection with any other person making a bid for the same purpose, and is in all respects fair and without collusion or fraud, and that no member of the Board of Alderman, head of a department, chief of a bureau, deputy thereof or clerk therein, or other officer or employee of The City of New York is, shall be, or become interested, directly or indirectly, as contracting party, partner, stockholder, surety or otherwise in or in the performance of the contract, or in the supplies, work or business to which it relates, or in any portion of the profits thereof. The bid must be verified by the oath in writing of the party or parties making the bid that the several matters stated therein are in all respects true. No bid will be considered unless, as a condition precedent to the recep- tion or consideration of such bid, it be accompanied by a certified check upon one of the State, or National Bureau, or trust companies of The City of New York, or a check of such bank or trust company signed by a duly authorized officer thereof, drawn to the order of the Comptroller, or money of corporate stock or certificates of indebtedness of any nature issued by The City of New York, which the Comptroller shall approve as of equal value, with the security amount of not less than three nor more than 5 per centum of the amount of the bond required, as provided in section 420 of the Greater New York charter. All bids for supplies must be submitted in duplicate. The certified check or money should not be included in the envelope containing the bid, but should be either inclosed in a separate envelope addressed to the head of the Department, President, or Board, or submitted per- sonally upon the presentation of the bid. For particulars as to the quantity or quality of the supplies, or the nature and extent of the work, reference must be made to the specifi- cations, schedules, plans, etc., on file in the said office of the President, Board, or Department. No bid shall be accepted from, or contract awarded to, any person who is in arrears to the City of New York upon debt or contract, or who is a defaulter in surety or otherwise, upon any obligation of the City. MUNICIPAL CONTRACTS 229 The contracts must be bid for separately. The right is reserved in each case to reject all bids if it is deemed to be for the interest of the City so to do. Bidders will write out the amount of their bids in addition to insert- ing the same in figures. Bidders are requested to make their bids upon the blank forms pre- pared and furnished by the city, a copy of which, with the proper envelope in which to enclose the bid, together with a copy of the con- tract, including the specifications, in the form approved by the Cor- poration Counsel, can be obtained upon application therefor at the office of the Department for which the work is to be done, or the sup- plies are to be furnished. Plans and drawings of construction work may be seen there. In the study of the foregoing municipal contract offers it will be noticed that in some instances the contract advertised calls for a deposit equal to 5 per cent of the surety required while in others it calls for 1^ per cent of the amount of the contract awarded. It is obvious that both interpretations mean the same amount of deposit even if they are differently expressed. For example suppose, the amount of the contract to be awarded is $100,000 and the surety required is 30 per cent or $30,000. If the deposit required is 5 per cent of this last amount, it would be $30,000 X .05 = $1,500, and, if the deposit called for 1J per cent of the contract amount awarded, it would be $100,000 X .015 = $1,500 the same amount in both instances. Another conclusion to be drawn from the specimen contracts is that when 5 per cent of the surety is required as a deposit, the implication is that the contractor must furnish a bond, and when \Yi per cent of the amount of the contract is required as a deposit no bond is needed. Surety Bonds. Bonding companies insure up to the full contract amount if so desired, and the premium cost ranges from ? to 1} per cent of the contract price. If a con- tractor defaults in the performance of the contract it is reasonable to suppose that it can be relet to some other contractor to finish without sustaining a loss above 10 per cent of the price originally estimated. On these 230 ACCOUNTING FOR CONTRACTORS premises the owner or municipality letting the contract would be amply protected against loss by having the bond taken out for 25 per cent of the contract price, and any amount above that is unwarranted. The owner has recourse to the surety company for any damage sustained, plus expenses and losses occasioned by the contractor defaulting. Bonds are issued in proportionate parts of a year and the premium is correspondingly prorated. Therefore it is not compulsory on the part of the insured to pay a full year's premium. The bonding company charges an extra premium to cover a maintenance clause on work to be guaranteed by the contractor, which may be paid separately or included in the premium on the bond. The conditions specified in each individual bond govern the rights and obligations of each party to a contract. Examination of Municipal Contract Accounts. In the examination and audit of the contract accounts of a municipality the following is an outline of the work neces- sary in connection with such an examination: 1. Schedule all contracts awarded. 2. Schedule all bids, both accepted and rejected, and analyze them in groups as applying to each contract; then compare them, and where a contract was not awarded to the lowest bidder, find out who was authorized to make the award and accept a higher bid. 3. Study the conditions embodied in each contract, and see if the work has been performed accordingly. 4. Compare the cost for completed contracts as shown by each general contractor with that of the official estimate. This refers to other than lump sum contracts. Scrutinize very thoroughly the issuance and acceptance of extra orders, which are supplemental to the contract price. 5. Note carefully the method of payment to be made to the con- tractor under the contractural agreement, and see if it has been strictly adhered to. 6. Delve into the overhead, i.e., items of expense that do not form an actual part of the construction, but are incident thereto, and deter- mine whether or not they are allowable, so that the contract will not be padded with any extraneous costs. 7. Each contract should be captioned according to the nature and MUNICH'. \L CONTRACTS 231 location of the work, and then given a number symbol, in which order they are scheduled; the schedule also shows the name of the contractor. 8. Each contract must be analyzed and proven independently, and the cost and fees segregated accordingly. Where the contracts are unfinished, and the payments are subject to a retention on the value of the work performed, see that if such a payment be requisitioned that only the amount less retention has been paid. 9. When analyzing the cost that goes into a contract for materials and labor, it may be found that the unit prices involved are greatly in excess of an honest market price exacted by the supplier from the contractor, which would make a corresponding high price to the munici- pality. Where collusive tactics have been resorted to between the supplier and the contractor against the municipality, the contractor may be billed at the exhorbitant price by the supplier who later on rebates the overcharge to the contractor. Such a proceeding would make it possible for the contractor to properly voucher his costs by being able to produce invoices for material absorbed by the contract at the prices submitted, while he would enjoy a further profit to the extent of the rebate. In addition to the excess cost of materials the contractor may also manipulate his labor costs by either dummy names, compensated idleness, excess wage rates, etc. Leakages may also accrue to the municipality's disadvantage from lack of a proper account- ing for materials for salvage, which at times is junked at a sacrifice to the municipality and at others it is stolen whole or in part. 10. When a contract is awarded on a lump sum basis, excessive bids by sub-contractors may be included in the general contractors' bid, and there may be collusion between them. For example, the sub- contractor may bid at a price that would allow for a refund on his cost to the general contractor, and still return a profit to himself. The possibility of such collusion should not be overlooked. Though the above methods are those usually followed in the exami- nation and audit of municipal contracts, they are of course applicable to every kind of contract. It follows therefore, that the various condi- tions can be brought to light only by going to the source of all the items and finding where they originate. Moreover., any cost that goes into a contract can be traced from its first to its final disposition, and such being the case, any unfair manipulation of its value is clearly exposed when the various channels through which it passes are analyzed accord- ing to its changes of ownership. CHAPTER XXI LEGAL ASPECTS OF CONTRACTS Contract Defined Elements. The term "contract" is difficult to define exactly and completely. Blackstone's definition, a common one but subject to more or less criti- cism, is: An agreement upon sufficient consideration to or not to do a particular thing. A definition less subject to criticism, that of Anson, is: An agreement enforceable at law, made between two or more persons, by which rights are acquired by one or more to acts or forbearances on the part of the other or others. From this second definition, it is possible to enumerate the essential elements of a contract, which are: 1. Competent parties. 2. Agreement or offer and acceptance. 3. Sufficient consideration, when required by law. 4. Genuine consent or the absence of mistake, misrepresentation, fraud, duress or undue influence. 5. A lawful object. 6. Compliance with the forms required by law. Enforceability. The element of enforceability is all- important in this connection. When a bargain is made, the terms thereof must be such that the bargain can be enforced, legally, by one party against the other. The general duty of keeping faith is not recognized except as a matter of mere responsibility. Therefore, unless an agree- ment is legally enforceable, it is useless; one party to the contract if a loophole exists, except in rare instances, will not consider it good business to stand firm under the moral obligations resting upon him to carry his side of the agreement through to a successful conclusion, and may 232 LEGAL AWECTX Ob' COM'KACTS 233 repudiate everything that was said and to which the two parties had agreed. Those who wish to depend upon an action, based upon a promise, will find it to their advantage to exact an oath or a pledge for its faithful performance or to require a bondsman to go security for the proper carrying out of the agreement. Offer and Acceptance. A binding contract is regularly constituted when there has been a meeting of the minds of the parties with respect to their intentions. This takes the form of an offer and the acceptance of such offer. An acceptance must be in the exact terms of the offer; other- wise, no more obligation is created than if there had never been the least semblance of an acceptance. An offer before acceptance creates no obligation of any kind. An acceptance need not necessarily be couched in spoken or written words; acts and signs may, and constantly do, signify proposal and assent. Stepping into a street car is an acceptance of an offer on the part of the street railway company to carry you a certain distance for a consideration the fare. Acts conveying to a reasonable man the proposal of an agreement or the acceptance of a proposal he has made, are as good in law as equivalent, express words. Implied Contract Quasi-Contract. In the above con- nection, the term "implied contract " is current but at times, unfortunately, its meaning is ambiguous. Sometimes the term refers to a contract concluded by acts, not words, of one or of both parties. Again, it may refer to an obliga- tion imposed by law, where no agreement exists in fact. In the latter event, the name " quasi-contract " is more appropriate. Intention. A contract obligation is one created and determined by the will of the parties thereto. If the agreement has been reduced to writing, the written docu- ment takes ' precedence over all former oral agreements and negotiations. Oral testimony will not be permitted to vary the terms of an agreement reduced to writing. 234 ACCOUNTING FOR CONTRACTORS The intention of the parties is deduced from the written expression of such intention. If such written intention is obscure and indefinite, the Courts will read into the agreement the intention of the parties thereto, basing such interpretation upon the legal rules set down to govern such cases. Everyone knows that the application of the basic princi- ple of intention is not always obvious. Therefore, when making a contract one should determine specifically what the intentions of the interested parties are, and then express such intentions in clear, simple English. Every possible point of controversy should be covered; nothing should be left to chance, and one should never work on the prin- ciple that the other fellow is an honest man. He may be honest; and you may assume that he is but one should secure protection, first, last, and all the time. Even under such circumstances, possibilities may arise, hitherto uncontemplated. The law may even have to step in to fill up the gaps by judicial conjecture. In such event, the guiding principle still is, or ought to be, the consideration of what each party has given the other reasonable cause to expect. The Courts aim not at impos- ing terms on the parties but at fixing the unexpressed terms, as the parties themselves would have done, or reasonably might have done, had they placed themselves on record concerning them. Every contracting party is bound to perform his promise, according to the terms of such promise, and, in case of doubt, he is obliged to perform it in the sense in which the other party would reasonably understand the promise. Consideration. In the law of contract, a consideration may be defined as something that has value in the eyes of the law. It need not be money or goods. A promise is a valuable consideration; so also is forbearance to do something which one is entitled to do. The consideration need not be adequate, so long as it has some value. Thus the sale of valuable goods, for a consideration of one LEGAL ASPECTS OF CONTRACTS 235 dollar, is a contract supported by a valuable consideration. The consideration must be legal; the doing or the promise to do, an illegal act can never be a valid consideration for a contract. The consideration must be present or future; it can never be past. Agent and Principal. In general, whatever a man may do in his own right, he may do by an agent. Any person legally competent to make contracts may act through an agent. But, the same qualifications are not required for agents as are required for principals. As a general rule, any person of sound mind may become agent for another. An infant, for example, may not appoint an agent; but, except he be of tender years, he may become an agent and a contract made by him in this capacity will be binding upon his principal. Before entering specifically upon a discussion of con- struction contracts, it is well to point out a few important principles governing the relationship of principal and agent. These may be enumerated as follows: 1. When an agent makes a contract in the name of his principal, and signs himself as agent only, he drops out of the transaction, as soon as the contract is made. Only the principal and the third party may sue and be sued upon the agreement. However, if the agent contracts in his own name, as often is the case, he is an interested party in the contract. 2. When an agent contracts for a principal, without disclosing the latter's name, the third party, upon discovering the principal, may elect whether he will hold the agent or the principal to the agreement. The principal may sue upon the contract; the agent may do likewise, unless the principal first intervenes. 3. If the agent has been permitted by the principal to hold him- self out as principal, and the third party dealt with the agent in the belief that the latter was the principal, the third party may set up, in an action by the principal against him, any defense that he had against the agent, had the latter brought suit in his own name as principal against the third party. 4. The agent who acts as a foreign principal is always personally liable, unless the third party specifically agrees to look only to the principal. 236 ACCOUNTING FOR CONTRACTORS Damages. When a breach of contract occurs, the party who suffers thereby has certain remedies that he may enforce against the guilty person. These are as follows: 1. In certain limited cases, he may compel a specific performance of the contract; or 2. He may sue for damages caused by the breach. The measure of damages, generally speaking, is the sum necessary to place the aggrieved party in the same position he would have been in, had the contract been fully per- formed. If a breach of contract is proved, but the ag- grieved has suffered no real damage, he is entitled to have his legal right recognized by the award of what are called "nominal damages." Nominal damages constitute a sum just sufficient to carry a judgment in favor of the damaged party for the infraction of his legal rights. Such a decision has the practical effect of assessing the costs of the suit against the technical wrong-doer. Interest is at the discretion of the court. Assumpsit. "Assumpsit" may be defined as an action for the recovery of damages by reason of breach or non- performance of a contract, whether the contract is expressed or implied, oral or written. APPENDIX The forms which follow, show the kind of contractual agreement that are in most instances made between the owner who contemplates the erection of a building and his contractor who is to perform the work. The terms of compensation to be paid the contractor by the owner are as follows: (1) Lump Sum; (2) Cost, Plus a Fixed Fee; (3) Cost, Plus a Percentage. 237 238 ACCOUNTING FOR CONTRACTORS THIS AGREEMENT, made the day of in the year one thousand nine hundred and by and between party of the first part (hereinafter designated the Contractor . . ) and party of the second part (hereinafter designated the Owner..), WITNESSETH that the Contractor. ., in consideration of the agree- ments herein made by the Owner. ., agree with the Owner. . as follows: Section 1. The Contractor. . shall and will provide all the materials and perform all the work for the as shown on the drawings and described in the specifications pre- pared by Architect, which drawings and specifications are identified by the signatures of the parties hereto, and become hereby a part of this contract. Section 2. It is understood and agreed by and between the parties hereto that the work included in this contract is to be done under the direction of the said Architect, and that his decision as to the true construction and meaning of the drawings and specifications shall be final. It is also understood and agreed by and between the parties hereto that such additional drawings and explanations as may be necessary to detail and illustrate the work to be done are to be furnished by said Architect, and they agree to conform to and abide by the same so far as they may be consistent with the purpose and intent of the original drawings and specifications referred to in Section 1. It is further understood and agreed by the parties hereto that any and all drawings and specifications prepared for the purposes of this contract by the said Architect are and remain his property, and that all charges for the use of the same, and for the services of said Architect, are to be paid by the said Owner. . . Section 3. No alterations shall be made in the work except upon written order of the Architect; the amount to be paid by the Owner. . or allowed by the Contractor . . by virtue of such alteration to be stated in said order. Should the Owner. . and Contractor. . not agree as to amount to be paid or allowed, the work shall go on under the order required above, and in case of failure to agree, the determination of said amount shall be referred to arbitration as provided for in Section 12 of this contract. FORM 44. Building Agreement Lump Sum. APPENDIX 239 Section 4. The Contractor. . shall provide sufficient, safe and proper facilities at all times for the inspection of the work by the Architect of his authorized representatives, shall, within twenty-four hours after receiving written notice from the Architect to that effect, proceed to remove from the grounds or buildings all materials con- demned by him, whether worked or unworked, and to take down all portions of the work which the Architect shall by like written notice condemn as unsound or improper, or as in any way failing to conform to the drawings and specifications and shall make good all work damaged or destroyed thereby. Section 5. Should the Contractor. . at any time refuse or neglect to supply a sufficiency of properly skilled workmen, or of materials of the proper quality, or fail in any respect to prosecute the work with promptness and diligence, or fail in the performance of any of the agreements herein contained, such refusal, neglect or failure being certified by the Architect, the Owner. . shall be at liberty, after three day's written notice to the Contractor. ., to provide any such labor or materials, and to deduct the cost thereof from any money then due or thereafter to become due to the Contractor. . under this contract; and if the Architect shall certify that such refusal, neglect or failure is sufficient ground for such action, the Owner. . shall also be at liberty to terminate the employment of the Con- tractor. . for the said work and to enter upon the premises and take possession, for the purpose of completing the work included under this contract, of all materials, tools and appliances thereon, and to employ any other person or persons to finish the work, and to provide the materials therefor; and in case of such discontinuance of the employment of the Contractor . . , shall not be en- titled to receive any further payment under this contract until the said work shall be wholly finished, at which time, if the unpaid balance of the amount to be paid under this contract shall exceed the expense incurred by the Owner. . in finishing the work, such excess shall be paid by the Owner . . , to the Contractor . . ; but if such expense shall exceed such unpaid balance, the Contractor. . shall pay the differ- ence to the Owner. . The expense incurred by the Owner. . as herein provided, either for furnishing materials or for finishing the work, and any damage incurred through such default, shall be audited and certified by the Architect, whose certificate thereof shall be con- clusive upon the parties. Section 6. The Contractor. . shall complete the several portions and the whole of the work comprehended in this Agreement by FORM 44. Building Agreement Lump Sum. (Continued.) 240 ACCOUNTING FOR CONTRACTORS and at any time or times hereinafter stated, to wit: Section 7. jShould the Contractor. . be delayed in the prosecu- tion or completion of the work by the act, neglect or default of the Owner. ., of the Architect, or any other contractor employed by the Owner. . upon the work, or by any damage caused by fire or other casualty for which the Contractor. . not responsible, or by combined action of workmen in no wise caused by or resulting from default or collusion on the part of the Contractor . . , then the time herein fixed for the completion of the work shall be extended for a period equivalent to the time lost by reason of any or all the causes aforesaid, which extended period shall be determined and fixed by the Architect; but no allowance shall be made unless a claim therefor is presented in writing to the Architect within forty-eight hours of the occurrence of such delay: Sections. The Owner. . agree. . to provide all labor and materials essential to the conduct of this work not included in this contract in such manner as not to delay its progress and in the event of failure so to do, thereby causing loss to the Contractor . . , agree . . that will reimburse the Contractor. . for such loss: and the Contractor. . agree . . that if shall delay the progress of the work so as to cause loss for which the Owner. . shall become liable, then shall reimburse the Owner. . for such loss. Should the Owner. . and Contractor. . fail to agree as to the amount of loss comprehended in this Section, the determination of the amount shall be referred to arbitration as provided in Section 12 of this contract. Section 9. It is hereby mutually agreed between the parties here- to that the sum to be paid by the Owner. . to the Contractor. . for said work and materials shall be subject to additions and deductions as hereinbefore provided, and that such sum shall be paid by the Owner . . to the Contractor . . , in current funds, and only upon certificates of the Architect, as follows: The final payment shall be made within days after the completion of the work included in this contract, and all payments shall be due when certificates for the same are issued. If at any time there shall be evidence of any lien . . or claim . . for which, if established, the Owner. . of the said premises might become liable, and which is chargeable to the Contractor. ., the Owner. . shall have FORM 44. Building Agreement Lump Sum. (Continued.) APPENDIX 241 the right to retain out of any payment then due or thereafter to become due an amount sufficient to completely indemnify against such lien . . or claim . . Should there prove to be any such claim. . after all payments are made, the Contractor. . shall refund to the Owner. . all moneys that the latter may be compelled to pay in discharging any lien . . on said premises made obligatory in conse- quence of the Contractor. . default. Section 10. It is further mutually agreed between the parties hereto that no certificate given or payment made under this contract* except the final certificate or final payment, shall be conclusive evi- dence of the performance of this contract, either wholly or in part, and that no payment shall be construed to be an acceptance of defective work or improper materials. Section 11. The Owner. . shall during the progress of the work maintain insurance on the same against loss or damage by fire, .... the policies to cover all work incorporated in the building, and all materials for the same in or about the premises, and to be made payable to the parties hereto, as their interest may appear. Section 12. In case the Owner. . and Contractor. . fail to agree in relation to matters of payment, allowance or loss referred to in Sections 3 or 8 of this contract, or should either of them dissent from the decision of the Architect referred to in Section 7 of this contract, which dissent shall have been filed in writing with the Architect within ten days of the announcement of such decision, then the matter shall be referred to a Board of Arbitration to consist of one person selected by the Owner. ., and one person selected by the Contractor. ., these two to select a third. The decision of any two of this Board shall be final and binding on both parties hereto. Each party hereto shall pay one-half of the expense of such reference. The said parties for themselves, their heirs, successors, executors, administrators and assigns, do hereby agree to the full performance of the covenants herein contained. IN WITNESS WHEREOF, the parties to these presents have hereunto set their hands and seals, the day and year first above written. In presence of In presence of FORM 44. Building Agreement Lump Sum. (Concluded.) 16 242 ACCOUNTING FOR CONTRACTORS THIS AGREEMENT, made this day of 191 . . , by and between Company, a corporation organized and existing under the laws of the State of party of the first part, hereinafter called the "Company," and the Company, a corporation organized and existing under the laws of the State of , party of the second part, hereinafter called the " Contractor," WHEREAS, the Company desires to have constructed in accordance with plans and specifications prepared by the engineer of , identified by the signatures of the parties hereto and made a part hereof and WHEREAS, the Contractor is desirous of performing this work under the terms and conditions hereinafter outlined, NOW, THEREFOR, the parties to this agreement, each in con- sideration of the covenants and agreements on the part of the other herein contained, do hereby covenant and agree as follows: 1. The Contractor shall act as agent for the Company hi exe- cuting the work as outlined herein, in accordance with plans and speci- fications above referred to. 2. The Company will It is further understood and agreed that the work to be done by the Company will be done without interference with the work herein agreed to be done by the Contractor. 3. In consideration of the faithful performance of the covenants and agreements made by the Contractor, the Company hereby covenants and agrees to pay, or cause to be paid to the Contractor, an amount equal to the "cost of the work," as hereinafter defined, plus a fee of Dollars, ($ ), subject to the conditions set forth in Article No. 8. 4. It is understood and agreed by the parties hereto that the term "cost of the work" shall include all expenses of whatsoever nature incurred by the Contractor in connection with this work, excepting cost of maintenance of Contractor's main office in New York. The said costs would include: (a) All labor and materials, both for temporary and permanent work, including camp and other temporary buildings. FORM 45. Building Agreement Cost Plus a Fee. M'I'ENDIX 43 (b) The cost of transportation of all plant (including that furnished by the Contractor) to and from the site of the work, the said costs to include freight, trucking and the loading and unloading of plant at the Contractor's Yard and at the site of the work. (c) All necessary repairs to plant while on the work. (d) The transportation and traveling expenses of all men to and from the site of the work, including the traveling expenses of officers or engineers of the Contractor when their services are required on the work. (e) All expenses of superintendents, including time-keepers and clerks, but not including any charge for services rendered by the officers or engineers of the Contractor from its New York office. (f) The cost of the installation, maintenance and dismantling of plant, pipe lines, etc., at the site of the work. (g) The cost of all supplies including any equipment not furnished by the Contractor as hereinafter mentioned, wire and Manila rope, blocks and tackle, hand tools, piping, steam and air hose, fuel, oil, waste, caisson shafts, ladders, etc., any salvage on same at the completion of the work to be credited to the cost of the work. (h) The cost of running the camp in excess of receipts from same. (i) The expenses of the local office, on the work, of the Contractor, including telegrams, telephone, express, postage, etc. (j) The cost of the necessary liability insurance to protect both the Company and the Contractor from loss by reason of damages to, or injuries sustained by the public or workmen while engaged on the work, and costs of all damages in excess of liability insurance. (k) The cost of any legal expenses and the rental of any property necessary for the prosecution of the work. 5. The Contractor will furnish without charge other than the fee hereinbefore provided for, its business system, its engineering skill and experience, its patent methods and patent rights in its appliances, its skilled organization, and generally, its ability to equip the work with efficient plant, and to organize the job with men experienced in this class of work, and to construct, expeditiously and successfully, work of this nature. The Contractor will also furnish without additional charge, the heavier items of plant required in connection with the work such plant consisting of air com- pressors, air locks, receiver and cooler, derricks, hoisting engines, concrete mixer, caisson buckets and boilers (State specific items). FORM 45. Building Agreement Cost Plus a Fee. (Continued.) 244 A('( '(>('. \r-I.\G FOli CUXTKACTORS 6. It is understood and agreed that the Contractor shall pur- chase, for the account of the Company, all supplies and materials, etc., required in cqnnection with the work, except such as the Com- pany may wish to purchase itself, shall duly approve bills for same for payment, and shall then forward them to the Company for pay- ment, and the Company agrees that it will make payment for such bills direct to the individuals or firms from which the materials or supplies were purchased. Expenditures made by the Contractor on account of the work shall be reimbursed as follows: On the first (1st) and fifteenth (15th) days of each month, the Contractor shall furnish to the Company a statement of the expenditures made by it during the preceding two weeks' period on account of the work, rendering prqper vouchers therefor, and the Company agrees that within five (5) days of the receipt of such statement from the Con- tractor, it will pay the Contractor the amount of such statements. The Company further agrees that between the first (1st) and fifth (5th) days of each month it will pay or cause to be paid to the Con- tractor on account of the fee herein agreed upon per cent, of the fee mentioned in Article No. 3 (until per cent, of the fee has been paid to the Contractor), for the work done by it during the preceding month, and will pay or cause to be paid within thirty (30) days after the completion of the work, the rest of the fee, if any, due to the Contractor. 7. The Contractor shall afford sufficient facilities to the author- ized representatives of the Company for the inspection of said work and materials. 8. The Contractor guarantees to the extent of this fee, that the cost of the work, including this fee, shall not exceed the sum of $ , but the parties hereto agree in the event of the cost, including the fee to the Contractor, being less than $ , that any sum which may be saved on such cost, under the said sum of $ , shall be divided equally between the parties hereto; and the parties hereto further agree in the event of the cost, including the fee of $ to the Contractor, being over $ , the Contractor shall pay one-half of said cost in excess of such sum of $ , until the amount which it may be called upon to pay shall equal $ when further payments on the part of the Contractor, on account of such extra cost, shall cease. Payments of extra fee to the Contractor by the Company, or rebate in fee by the Contractor to the Com- pany, as provided in this clause, to be made at the time of final pay- ment referred to in Article No. 6. FORM 45. Building Agreement Cost Plus a Fee. (Continued.) .1 //'/: .v/;/.v 245 9. Should the Contractor at any time during the progress of the work refuse or neglect to supply a sufficiency of materials of proper quality, or of competent workmen, or cause any unreason- able neglect or suspension of work, or fail or refuse to comply with any of the articles of this agreement, the Company shall be at liberty, after giving ten (10) days' written notice to the Contractor, to terminate this contract, and in that event, the Company shall pay to the Contractor the cost of the work as defined in Paragraph No. 4, plus such portion of the fee mentioned in Article No. 3 as may be due, as provided in Article No. 6, up to the date on which the ten (10) days' notice, heretofore described, expires. In case the con- tract is terminated before completion, Article No. 8 will be disre- garded by both parties in adjusting final payment. Upon such payment being made, by the Company to the Contractor, this con- tract shall thereupon be terminated. 10. The Contractor agrees to take out and maintain at all times during the course of said work liability insurance in amounts to be approved by the Company, to protect said Company and Con- tractor from loss by reason of damage to, or injuries sustained by, the public or workmen while engaged on the work. 11. The conditions of this contract shall be binding on the suc- cessors and assigns of the parties hereto, but no assignment hereof shall be made nor sub-contract let by the Contractor without the written consent of the Company. 12. The Company shall furnish the Contractor free of charge such permits as may be required for the prosecution of the work. IX WITNESS WHEREOF, the said parties have hereunto set their hands and seals as of the day and year first above written. (Company) Witness: By Witness: By (Contractor) FORM 45. Build.'n^ Agreement Cost Plus a Fee. (Concluded. 246 ACCOUNTING FOR CONTRACTORS THIS AGREEMENT, made this day cf , 191 . . , by and between The Company, a corporation organized and existing under the laws of the State of , party of the first part, herein- after called the "Company, " and The Company, a corporation organized and existing under the laws of the State of , party of the second part, hereinafter called the "Contractor," WITNESSETH WHEREAS, the Company desires to have constructed in accordance with plans and specifications prepared by the Engineer of the identified by the signatures of the parties hereto and made a part hereof, and WHEREAS, the Contractor is desirous of performing this work under the terms and conditions hereinafter outlined. NOW, THEREFORE, the parties to this agreement, each in con- sideration of the covenants and agreements on the part of the other herein contained, do hereby covenant and agree as follows: 1. The Contractor shall act as agent for the Company in exe- cuting the work as outlined herein, in accordance with plans and specifications above referred to. 2. The Company will It is further understood and agreed that the said work shall be done by the Company without interference with the work herein agreed to be done by the Contractor. 3. In consideration of the faithful performance of the covenants and agreements made by the Contractor, the Company hereby covenants and agrees to pay, or cause to be paid to the Contractor, an amount equal to the "cost of the work" as hereinafter defined, plus a commission of per cent. ( %) of said cost as compensation for the services of the Contractor. FORM 46. Building Agreement Percentage Basis. M'l'ENDIX 247 4. It is understood and agreed by the parties hereto that the term "cost of the work" shall include all expenses of whatsoever nature incurred by the Contractor in connection with this work, excepting cost of maintenance of Contractor's executive main office in The said costs would include: (a) All labor and materials, both for temporary and permanent work, including camp and other temporary buildings. (b) The cost of transportation of all plant (including that furnished by Contractor) to and from the site of the work, the said costs to include freight, trucking and the loading and unloading of plant at the Contractor's yard and at the site of the work. (c) All necessary repairs to plant while on the work. (d) The transportation and traveling expenses of all men to and from the site of the work, including the traveling expenses of officers or engineers of the Contractor when their services are required on the work. (e) All expenses of superintendents, including timekeepers and clerks, but not including any charge for services rendered by the officers or engineers of the Contractor from its main executive office. (f) The cost of the installation, maintenance and dismantling of plant, pipe lines, etc., at the site of the work. (g) The cost of all supplies, including any equipment not furnished by the Contractor as hereinafter mentioned, wire and Manila rope, blocks and tackle, hand tools, piping, steam and air hose, fuel, oil, waste, caisson shafts, ladders, etc., any salvage on same at the com- pletion of the work to be credited to the cost of the work. (h) The cost of running the camp in excess of receipts from same. (i) The expenses of the local office on the work, of the Contractor, including telegrams, telephones, express, postage, etc. (j) The cost of the necessary liability insurance to protect both the Company and the Contractor from loss by reason of damages to, or injuries sustained by, the public or workmen while engaged on the work, and costs of all damages in excess of liability insurance. (k) The cost of any legal expenses and the rental of any property necessary for the prosecution of the work. FORM 46. Building Agreement Percentage Basis. (Continued.) 248 ACCOUNTING FOR CONTRACTORS 5. The Contractor will furnish without charge, other than the commission or fee herein provided for, its business system, its engi- neering skill and experience, its patent methods and patent rights in its appliances, its skilled organization, and generally, its ability to equip the work with efficient plant, and to organize the job with men experienced in this class of work and to construct, expeditiously and successfully, work of this nature. The Contractor will also furnish without additional charge the heavier items of plant required in connection with the work, such plant consisting of air compressors, air locks, receiver and cooler, derricks, hoisting engines, concrete mixers, caisson buckets and boilers (State specific items). 6. It is understood and agreed that the Contractor shall purchase, on account of the Company, all supplies and materials, etc., required in connection with the work, except such as the Company may wish to purchase itself, shall duly approve bills for same for payment, and shall then forward them to the Company for payment, and the Company agrees that it will make payment for such bills direct to the individuals or firms from which the materials or supplies are purchased. Expenditures made by the Contractor on account of the work shall be reimbursed as follows: On the first (1st) and fifteenth (15th) days of each month, the Contractor shall furnish the Company a statement of the expenditures made by it during the preceding two weeks' period on account of the work, rendering proper vouchers therefor, and the Company agrees that within five (5) days of the receipt of such statement from the Contractor, it will pay the Contractor the amount of such statements. The Company further agrees that between the first (1st) and fifth (5th) days of each month it will pay or cause to be paid to the Contractor, on account of the commission or fee herein agreed upon, one-half of the amount due the Contractor, as commission or fee for work done by it during the preceding month, and will pay or cause to be paid within thirty (30) days after the completion of the work, the balance of the fee or com- mission due to the Contractor. 7. The Contractor shall afford sufficient facilities to the author- ized representatives of the Company for the inspection of said work and materials. FORM 46. Building Agreement Percentage Basis. (Continued.) .\rrK.\nrx 240 8. Should the Contractor at any time during the progress of the work refuse or neglect to supply a sufficiency of mutt-rials of proper quality, or of competent workmen, or cause any unreasonable neglect or suspension of work, or fail or refuse to comply with any of the articles of this agreement, the Company shall be at liberty, after giv- ing ten (10) days' written notice to the Contractor, to terminate this contract, and in that event, the Company shall pay to the Con- tractor the cost of the work as defined in Par. 4, plus its commission thereon. Upon such payments being made by the Company to the Contractor, this contract shall thereupon be terminated. 9. The Contractor agrees to take out and maintain at all times during the course of said work liability insurance in amounts to be approved by the Company, to protect said Company and Con- tractor from loss by reason of damage to, or injuries sustained by, the public, or workmen while engaged on the work. 10. The conditions of this contract shall be binding on the succes- sors and assigns of the parties hereto, but no assignment hereof shall be made nor sub-contract let by the Contractor without the written consent of the Company. 11. The Company shall furnish the Contractor free of charge such permits as may be required for the prosecution of the work. IN WITNESS WHEREOF, the said parties have hereunto set their hands and seals as of the day and year first above written. THE (Seal) Witness: By (Company) THE (Seal) Witness: By (Contractor) FORM 46. Building Agreement Percentage Basis. (Concluded.) INDEX Abandoned contract, 227 Advances, recording, 123 control account, 108 Agent and principal, 235 Agreement "contract," 238 Architectural and Engineering divi- sion, 158 Assumpsit, 236 B Balance Sheet, 138 Bank loans payable, 112 Bid sheets, 223 Bill of material, 184 Bonus for Cost saving, 29 or penalty "Fixed fee," 151 Capital stock account, 118 Car Card, 187 Cash analysis, 34 in bank, 104 and ledger control, 172 record, 124 Change of rate slip, 195 Classification of field accounts, 161 Collection bills, 18 Consideration, 234 Consolidated journal entry, 72 Construction cost record, 177 one item each month "con- tracts," 61 Contract cost account, 10 control, 109 and jobbing income, 121 labor and expense, 74 obligation, 233 Control balances, proof of, 129 Cost to finish, 94 and income details, 74 ledger "jobbing," 66 Cumulative classified unit ,-,,<{, 124, 148 contract ledger, 42, 122 monthly contract cost and in- come, 38 Customers' account, lump sum, 45 other than lump sum, 47 collection schedule, 92 monthly statement, 130 Daily bank balance, 126, 135 checking list, 194 Damages, recovery of, 236 Debit memo, 184 Deductions and cancellations, 12 Deferred contract cost, 10 income, 6 Deposit with bid, 229 Direct expense, cost, 121 Disbursing agents' forecast, 23 fund, 22 Discharge check, 196 Dividends payable, 113 Duplicate invoices, 78 E Earned contract sales control, 1 16 Element of enforceability, 232 Employees' badge number, 207 history card, 193 Employment report, 193 slip, 195 251 252 INDEX Equipment, 75 control, 213 files, 86 idle and working, 214 Estimate box, 224 compilation of, 219 Expense, administrative, 6 contracts, 64 selling, 6 Extra orders, 11 how paid, 12 Failure in performance, 224 Field accounting control, 170 contractors cost and reimburse- ment, 23 force-compensation, 21 ledger accounts, 206 Figure analysis book ruling, 59 Field contractors' office force, 154 orders, 182 pay lists, 205 routine, 199 stationary, 30 Filing contract agreements, 86 creditors' invoices, 86 purchase orders, 86 reference, 50 store room orders, 86 time and expense sheets, 87 transfer tickets, 86 Financial forecast, 137 Fixed fee, basis, 17 Foremen, duties, 83 report of material received and laid, 62 Freight charges, 195 Funds, capital, 225 current, 225 foremen, 65 Furniture and fixtures, 75, 106 G General contractor, 9 expense analysis record, 123 General expense control, 110 distribution, 67 statement, 141 instructions to bidders, 227 journal, 124 ledger, 125 accounts, 103 source of items, 31 In-and-out rack, 212 Income accrued, 98 Index cost and income, 58 Information for contractor, 2 Inspection certificate, 188 Insurance, fire, construction report, 160 Interest accrued, payable, 113 receivable, 108 Inventory adjustments, 26 Invoices, 125 original, 78 how posted, 78 and payroll register, 174 receipt of, 78 Jobbing cost accrued, 109 items, 75 labor and expense, 74 sources, 66 labor and expense clearing entry, 67 ledger, 123 sales, 75, 117 work bills, 67 Journal form, 32 closing entries, 132 monthly summary, 61 Labor charges to contract, 64, 121 and expense contracts, clearing entry, 65 Liability, contract, 16 INDEX 253 Loose, bank checks, 49 Lump sum contract, amount due, 13 method of record, 11 profit, 13 M Materials charged to contracts, 63, 75, 121 credit to contracts, 63 deliveries, 50 inventory, each contract, 44 laid, each contract, 41 market price, 6 receipt of, 78 surplus, 6 transfers between contracts, 61 Mortgages receivable, 105 N Notes payable, 112 receivable, 105 discounted, 112 Notice of bids, 223 of job taken, 19 Numbering accounts, 78 O Offer and acceptance, 233 Overhead cost, 74, 121 distribution basis, 99 Owner's cashier, 156 comptroller, 155 field staff, 154 report, monthly, 159, 202 Pay receipt and time card, 192, 208 Payable ledger, accounts, 122 control, 111 Payroll, audit, 209 envelope, 196 and expense account, 107 local and foreign, 125 form, 189 Payroll, money denomination, 209 recapitulation, 207 Penalties, 5 Plans and specifications, 4, 218 Plant capacity, 221 equipment, 107 supplies, 219 Preparatory expense, 219 Prevention of omissions, 220 Price fluctuations, 29 Profit, closed contract and jobbing work, 96, 144 curtailment, 27 estimate, 221 and loss adjustment account, 118 statement, 140 by states, 179 lump sum contract, 11 percentage and fixed fee con- tracts, 96 Purchase orders, 77, 125, 186 completed, 79 Prices, record of, 85 Quality of supplies, 223 Quantities, bills of, 5 Quantity surveyor, 4 Quasi, contract, 233 Quotation form, 185 R Receivable control accounts, 104 ledger accounts, 122 Red figure credits, 13 debits, 12 Remittance checking, numerical, 49 Report and schedules, fiscal, 119 Requisition, fixed fee and plant rental, 92 lump sum, 90 Reserve for bad debts, 113 for depreciation, furniture and fixtures and tools, 116 plant equipment, 114 INDEX Reserve for donated working capital, 113 Retention or holdback, 49 Routine of system, 101 S Sales earned, 93 Scope of audit, 230 Standardized costs, 220 State cost analysis, 54 segregation symbols, 55 Stock and bond investment account, 105 Store room control, 75, 82 inventory, 106, 131 ledger, 122 account, 81 order form, 82 issuance of, 83 and transfer ticket analy- sis, 69 debit and credit, 68 Sub-contract cost, 16, 79 liability, 198 payment, 80 record, 183 release, 197 requisition, 80 Supervision and profit, billing, 90 Supplies, billed from contractor's stock, 25 Surety bonds, 218 Surplus account, 118 Suspense account, 107, 204 Taxes accrued, payable, 113 state schedule, 53 Time checking sheet, 191 Time limit, 13 and material work profits, 15 recording, 190 Timekeepers' daily distribution, 194 Trading account, 118 Tool account, 106 inventory, 217 Traveling expense form, 88 Treasury stock account, 107 U Unbilled cost analysis, 73 inventory, 131 Unearned contract sales, 71, 117 Unfinished contract schedule, show- ing profits taken and fore- cast to complete, 50, 142 Unissued capital stock account, 111 Unit basis average, 168 billing, 19 Unpaid wage schedules, 208 Upset limit profit, 28 Upset price , 14 Value of unfinished work, 16 Vouchers for jobbing work, 20 Vendors invoices, distribution, 59 Voucher numbering, 50 W Waiting material expense, 6 Weekly labor distribution, 189 payroll and expense summary, 84 Weighting the work completed, 158 Workmen's compensation and public liability insurance pre- mium, 87 CCT a o UNIVERSITY OF CALIFORNIA LIBRARY Los Angeles This book is DUE on the last date stamped below. HAY 6 1964 DEC 2 3 1964 ANGELES APR 6 I96S INST. (NOUS. REU ULV- .151965 JAN 5 OCT 2 3 1969 OCT19-6C Form L9-32m-8,'58(5876s4)444 library Graduate School of Business Administration Uni^rsity of California Loa Angelea 24, California 3 000186146 University of California SOUTHERN REGIONAL LIBRARY FACILITY 405 Hilgard Avenue, Los Angeles, CA 90024-1388 Return this material to the library from which it was borrowed. OCT 19 1991