The Contractor business owner can not be separated from the needs of the financial statement. The financial statement is needed to manage the business and critical for the owner’s responsibility to have final review of the financial statement.
Contractor business is defined as the business entity which accepts the job and performs the work based on the cost specified referring to the determined plans, regulations, and conditions (Ervianto, 2002). In construction management, contractor business has four level: (1) organizational level; (2) project level; (3) operational level; (4) work assignment level (Halpin and Rigss, 1992). The accounting system applied for this business depends on the contractor scope and project characteristic (coombs & Palmer, 1989). A small sized contractor using cash method in accounting system where accounting system recognizes transaction there is cash flow. Accounting in a construction company handles the company expenses and revenue, the results is used by the management to decide the use of raw materials. Accounting tasks in construction companies include recording and reporting costs incurred in a project as well as the base of management to take a decision. Thus project cost during the project development will be more efficient.
There are some calculation methods applied, but generally, the construction company applies two methods:
1.Conversion percentage method. Gross profit income in this method is recognized periodically / year of the book based on the work progress or the percentage of completion.
2. The contract method is complete. Income and gross profit will only be recognized if the work fully completed
Among the two methods, the percentage method of settlement is mostly applied by the companies. Both buyers and sellers have the same right when the contract method completed. While the finished contract method is only applied under certain conditions, such as most contracts of the company are short-term (less than one year) or when conditions for applying the percentage completion method are not met.
