I work for a steel fabrication company in the US. I am looking within GAAP in order to determine how to account for our short term fabrication contracts. For our large projects, we account for them by using the percentage of completion. However, I was hoping since our a lot of business is short term projects that we could account for these contracts based on delivery. This way I could have finished goods for items not delivered and use this as borrowing power with our bank. What bothers me is that I dont see specific literature addressing short term contracts and the fact that we fabricate based on a specific contract. This lends to me to believe we should be on percentage of completion for all our projects. But that would cause me to lose a lot of borrowing power. Would you have any suggestions?
USA Short term contract question
- Thread starter Frostyc
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I see no problem in having one method for short term fabrication and one for long term. In fact, it makes sense. I think you should set this down into writing as an "accounting policy on fabrication." In this you explain why you have a long term method and a short term method. Very important that you create the "long term versus short term" distinction point and then follow it religiously. That is: which projects are to be accounted for as "long term" and the others are therefore "short -term".