THE ACCOUNTS OF TRANSPORT OPERATORS.
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The Special Features of Carrying Contract Accounts.
By S. Howard Withey, F.C.L, etc. (Accountant and Auditor).
Author of "The Book-keeper's Vade-Mecum," "Converting into a Limited Company," "The Principlesof Banking," etc.
THE system of accountancy to be instituted to give effect to carrying work undertaken by the transport operator on behalf of other people will differ very considerably from the system of book-keeping necessary in connection with a collection and delivery service. The former will be conducted for profit, whilst the chief requirements of the latter will be economy and efficiency, and in cases where both classes of work are undertaken the accounts should be kept quite distinct.
Even when only ,contract work is undertaken it should not be considered sufficient if the final accounts of the business as a whole show a good net profit for the year, for losses may have been sustained on certain contracts, or inadequate profits may have •been made under certain headings, although the business as a whole may be returning an ample profit. Many transport operators undertake to render services, or to perform work, at an agreed or stipulated figure, and this necessitates the keeping of separate contract accounts for the purpose of ascertaining the extent of the periodical net profit mate or net loss sustained. By so doing, economies will usually be found possible and excesses will be revealed in time to avoid serious consequences, whilst in most cases serious irregularities will be rendered quite impossible.
Keeping a Separate Account for Each Contract..
The existence of separate accounts for each job will also serve to show whether the operator is undercharging and thereby undertaking unprofitable business, or whether he is really overcharging and thereby unduly limiting the volume and area of business.
Each contract account will be debited with the cost price of all goods, articles, stores, etc., purchased by the operator for use in the execution of the particular work and also with the cost of any goods, stores or materials which have been taken from the operator's own stock for use in the fulfilment of the contract. It is advisable to add a small percentage—such as 2i per cent, to the actual cost price—to cover storage expenses, insurance, wastage and so forth, and in all cases the cost of carriage or cartage paid on the goods, etc., up to the time of their arrival on the operator's premises should be added.
It will be. necessary to charge against each contract a sufficient sum to cover the use of any machinery, plant or any other asset which may have been employed in connection with the work, and an adequate proportion of the wages paid to employees. The charging of the latter will involve a systematic analysis of the entries made in the wages book. The price at which the operator has agreed to render the actual transport services will also appear on the debit side of the account, these amounts having been posted direct from the charges book or sales book.
On the credit side of each contract account will be shown the various amounts of cash received in respect of the work or job, and if any balance remains unpaid at the end of the accounting period, the amount so outstanding should be credited to its proper account and then brought down on the debit side to commeLce the next period. In this way each individual account will receive credit for the full amount of cash receivable during the period under review, and the sum outstanding at balancing time Will be automatically treated as an asset.
The difference between the total of the debit entries of any given contract account and the total of the credit entries will represent either a profit or a loss, according to which total is the greater. If the debit total exceeds the credit total, the balance will repre
sent the actual net loss sustained under that heading, but if the total of the entries on the credit side, including the sum unpaid (if any) at the end of the period, exceeds the total on the debit side, the balance will represent the extent of the net profit made.
The Rule as to Credit and Debit Balances.
In those cases where it is known that additional expenses will have to be incurred in the carrying out of the contract, it will be impossible to determine the exact profit or loss unless, of course, the total of these expenses is also known. Consequently, the balance of that particular contract account would have to be treated, for the time being, as an asset or a liability, the amount being shown in the balance-sheet instead of in the profit-and-loss Account. The rule to be Observed is that debit balances are assets and credit balances are liabilities.
A specimen contract account is shown below:— The fact that the balance of i78 10s. has been brought down to commence the month of June shows that the contract has not yet been completed. Upon the completion of the contract the balance of the contract price outstanding should be transferred direct to the debit side of the personal account of the debtor.
When a considerable quantity or variety of goods is purchased regularly by the transport operator and used exclusively in the execution of current service eontracts, it will be found convenient to rule additional money columns in the purchases book to enable the ;various transactions to be classified under appropriate headings. The totals of these classification columns can then be posted to the debit side of their proper contract accounts.
With regard to expenses incurred and paid by the operator in connection with any contracts, the amounts involved can be charged up from separate entries made in the charges book, or the cash may be debited from the credit side of the general cash book or from the expenditure side of the petty cash book, as the case may be. In a subsequent article I will deal with the subject of depreciation and the way in which, from an accountant's point of view, it should be considered.