Accrual method for multi-month contracts


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Hi,

I am working on finalising the income statement for a consultancy firm. We do consultancy projects that usually run across 2 or 3 months to complete. So if I use the accrual method, my understanding is that I need to split the associated costs and income for the contracts over the 2 or 3 months in which the contract actually took place. Sometimes the costs are not captured with enough granularity to determine which costs were incurred in which months (something Im working on changing).

To over come this, I calculate the total costs for a specific project and then split it into the individual months according to how many of the total days of the project were worked on in each month. The total income for the project is then split in the same manner.

As example:

Total costs: 14323.566
Total Days: 37

APR 12 days = 4645.48
MAY 19 days = 7355.34
JUN 6 days = 2322.74

I am quite new to accounting so I would appreciate some input as to if this is a valid approach or if there are other methods or rules that I need to consider.

Thank you,

Pieter
 
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Dec 5, 2015
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I am quite new to accounting so I would appreciate some input as to if this is a valid approach or if there are other methods or rules that I need to consider.

Thank you,

Pieter
I'm even newer to accounting (unless you just starting reading about it less than 3 weeks ago) but from what I'm read this seems to depend on the accounting standard you use. For example, if you're using GAAP U.S. accrual then they have actually codified the standard and give specific direction how to do this, whereas if you're using IFRS then it's something else, and Tax accounting its something else still, etc. Apparently Fortune 500 companies have to keep 2 sets of books because of all of this - 1 for tax, another for "book" (GAAP in the U.S.), because they are required to keep depreciation and other accounting using one set of methods for GAAP, and an entirely different set of methods (MACRS, etc) for tax purposes.
 
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Joined
Dec 5, 2015
Messages
44
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United States
I'm even newer to accounting (unless you just starting reading about it less than 3 weeks ago) but from what I'm read this seems to depend on the accounting standard you use. For example, if you're using GAAP U.S. accrual then they have actually codified the standard and give specific direction how to do this, whereas if you're using IFRS then it's something else, and Tax accounting its something else still, etc. Apparently Fortune 500 companies have to keep 2 sets of books because of all of this - 1 for tax, another for "book" (GAAP in the U.S.), because they are required to keep depreciation and other accounting using one set of methods for GAAP, and an entirely different set of methods (MACRS, etc) for tax purposes.
Hmm, I'm surprised I have learned so much - literally four weeks ago I didn't know what double entry accounting was lol.
 

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