The Government May Be The Best Customer But Beware Of The Requirements!

With the economy going down the tubes, it can be difficult these days for companies relying on contracts to obtain private ones.  The state, local, and federal government may actually the best bet for shaking up some business right now.  After all, Obama is talking about increasing infrastructure spending so this is only likely to increase.  

These contracts with the government do not come without a price however.  They require mountains of paperwork to fill out and most certainly a surety bond.  The bonding agent will then often require an annual financial statement review or audit by a CPA firm and will also likely require the financial statements be prepared on a percentage of completion basis of accounting.  The latter can be a challenge because it usually requires the company to handle their bookkeeping in a new and unfamiliar way.  The most challenging aspect may be in estimating the total costs of the job.  However, this estimate can be revised as the job progresses.  There is no way to know 100% obviously the ultimate total costs until the job is closer to completion.  

When accounting for long-term contracts, the percentage of completion method does more accurately address the matching principal of accounting - matching revenues with their related expenses within a given time period.  It isn't as bad as it sounds because most of the time, the financial statements for the bonding company are only required on an annual basis so an analysis of uncompleted contracts and the corresponding entries just need to be done once a year.  If the company uses QuickBooks, then as long as it religiously uses the job costing feature of the program, it is easy to pull up the profit and loss by job reports necessary to perform the calculations.  Then, all one has to do is to refer to the original contract for the contract price and the estimated costs for the job.  The company can still continue to use its original accounting method for tax purposes.