Goods in transit

What is meant by goods in transit? Definition Goods in transit are goods that have been purchased but have not yet been received by the purchaser. These goods can be easily overlooked when counting the ending inventory because they are not physically located at either the seller’s or the purchaser’s warehouse. Accounting Treatment of goods … Read more

Periodic Inventory System

What is a Periodic Inventory System? Periodic inventory system does not keep continuous track of ending inventories and cost of goods sold. Instead, these items are determined only periodically, at the end of each quarter, each year, or other accounting period. Although this method may be easier to use for record-keeping purposes, it results in … Read more

How to calculate profit and loss on contracts?

The procedure for the determination of profit or loss on contracts under different circumstances may be given as follows: 1. Profit on Completed Contracts: In case of contracts completed during the accounting year, the full contract price, whether payable in lump sum on the completion of the contract or payable by installments, shall be debited … Read more

Cost Plus Contract

What is Cost Plus Contract? – Definition Sometimes contractors may accept a contract on the condition that the contractee would bear all costs incurred in executing a contract plus a fixed rate or percentage of profit calculated with reference to the total cost. Such contract is known as Cost Plus Contract and is generally adopted … Read more

Contract Costing

What is Contract Costing? – Definition Contract costing is the method of costing which is applied in a business where separate contracts of non-repetitive nature are undertaken. According to Sharie, “Contract or terminal cost accounts are applicable to a concern which makes specific contracts and requires to know the cost of each.” A contract is … Read more

Contract Account

What is Contract Account? – Definition When a contract has been accepted by the contractor, a separate account is opened for each contract in order to bring together all costs relating to a particular contract, and a serial number is given to each contract, which is called contract account. Explanation of Contract Account All expenses incurred … Read more

Cost Price Method

Explanation of Cost Price Method Under cost price method, materials issued to production, are charged out on the basis of actual cost i.e., the cost at which these have been purchased. As we already know, the actual cost of materials consists of purchase price or invoice price (less trade discount and quantity discount), import duty, … Read more

Pricing of materials returned to vendors

Materials returned to vendors may be recorded at invoice price or in accordance with the method adopted for pricing out material issues. Recording of materials returned at invoice price is not realistic as the price per unit granted by vendor on return of materials cannot be the same as the original invoice cost. Necessary adjustments … Read more

Pricing Methods of Material Issued

Different methods can be used for the purpose of valuing or pricing of materials issued for production in a manufacturing concern. The actual method to be adopted in a manufacturing concern shall depend upon the nature of materials and the nature of the business itself. It is important to note that whichever method of pricing … Read more