You know that I got lots of accounting questions in my "ask a question" data base. I also watch on other places like linkedin and facebook network where people ask me the answers of their question. One of question has been asked from my facebook by Sameer Ali. He is interested to know work certified and work uncertified. Both terms are related with contract costing. So, please read the introduction of contract costing before knowing the meaning of work certified and work uncertified.
Meaning of Work Certified
When contractor takes the contract to complete any construction work, it may complete in 4 or 5 years. but contractor has to pay different expenses for material, labor and others. So, it is very necessary to pay him some money of contract. This money is given on the basis of work done. So, any part of construction which is completed by contractor will be work certified if it is certified by an authority. Authority may be independent engineer or architect who can estimated the work. He will issue the certificate of work done after certifying the work of construction. On this work certified, contractor has right to get money of contract.
Meaning of Work Uncertified
Work uncertified means work done but not certified by authority. So, contractee will cut some money on the basis of work uncertified and will keep in his pocket. This will be retention money.
Accounting Treatment of Work Certified and Work Uncertified
(I) Work certified and work uncertified will go to the credit side of contract account. Why?
Main reason of this, contract account is just like income and expenditure account. We show all expenses of contract in its debit side and all income in its credit side. Work certified and work uncertified are just like outstanding income.
(II) Work certified and work uncertified will go to the asset side of balance sheet. Why?
Because both are outstanding income of contractor. But we deduct cash received and reserves from it because cash received will become income of current, so it will not include in balance sheet.
Meaning of Work Certified
Meaning of Work Uncertified
Work uncertified means work done but not certified by authority. So, contractee will cut some money on the basis of work uncertified and will keep in his pocket. This will be retention money.
Accounting Treatment of Work Certified and Work Uncertified
(I) Work certified and work uncertified will go to the credit side of contract account. Why?
Main reason of this, contract account is just like income and expenditure account. We show all expenses of contract in its debit side and all income in its credit side. Work certified and work uncertified are just like outstanding income.
(II) Work certified and work uncertified will go to the asset side of balance sheet. Why?
Because both are outstanding income of contractor. But we deduct cash received and reserves from it because cash received will become income of current, so it will not include in balance sheet.
Splendid
ReplyDeletenice explanation. Helpful.
ReplyDeleteHow to calculate work uncertified if its not given in the question?
ReplyDeleteIf work uncertified is not given it means that all work have done perfectly and work certified for all work done
DeleteEven though cash is deducted why dont we show it as an asset in the balance sheet separately
ReplyDeletethanks
ReplyDeleteWhy work uncertified is not treated as an loss
ReplyDelete