Accounting for Material
There are two main methods of accounting for material used in a contract:
- Specific identification: This method identifies the specific materials that are used on a contract and tracks their costs.
- Average cost: This method averages the cost of all of the materials that are used on a contract and assigns that cost to the contract.
The specific identification method is more accurate, but it can be more time-consuming. The average cost method is less accurate, but it is less time-consuming.
Accounting for Plant Used in a Contract
There are two main methods of accounting for plant used in a contract:
- Rent: This method treats the plant as a rental and charges the contract for the cost of the rental.
- Capitalization: This method capitalizes the cost of the plant and depreciates it over the life of the contract.
The rent method is simpler, but it may not be accurate if the plant is used for other purposes as well. The capitalization method is more accurate, but it may be more complex.