Basic Concept And Rules.

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The primary accounting issue in long term contracts is to determined the amount of profit to be recognition during financial period.The involves a continuous evaluation of estimate and assessment, and assessment of inherent uncertainties as a performance extends over several years. such uncertainty relate to buyer’s ability to settle the bills, contractor ability to perform a work, estimating costs, unforeseen technical problems, and general economical conditions such as availability of credit and rate of inflation.

 

Definition of Contract.

Contract is an agreement settled between two and more persons or parties.

Contrast has two major types: Short-term Contract and Long-term Contract.

Short-term Contract:

Short-term Contract are those contract that are settled in a time span of within a year. As a person takes the contract of building a roller coaster and the contract that is settled between the parties is until four months. Such type of settlement is called Short-term Contract.

Long-term Contract:

Those contracts that signed over a time span of over a year. Suppose ABC company signed a contract on 1st, July 2014 for the construction of a building. The contract term provided for completion of contract by Dec. 30th 2017. It will be called Long-term Contract.