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job costing

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#1
juro  
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My client, a construction contractor, has a new job where the customer will be supplying all materials.
What will happen is the customer will sell them to my client, and also pay my client the exact funds to pay the bill.

There will be zero mark-up. My client will use the funds to pay for the materials.
The purpose here will be better logistics, as the materials will be available on-site where the job is performed.

Does my client need to include these materials in Cost of Goods Sold? total cost of materials is $1.2 million.

My client wants to call this job a "labor only" job.

Consignment issue?
 

#2
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Why not just have the customer purchase and pay for the materials and have them delivered to job site?
 

#3
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Seaside CPA wrote:Why not just have the customer purchase and pay for the materials and have them delivered to job site?


I am wondering the same thing. The structure the client/customer have arranged makes zero sense to me. I did some construction accounting up until the real estate/construction crash and got out of it, entirely. While it is not uncommon for a customer to source some materials and have them delivered to job site, I have never heard of it running through the way they are indicating.

But to answer your question, my initial thought is it would still have COGS since your client is "buying" the materials from the customer, and the customer is also paying the contractor that exact amount. The "income" is offset by the COGS.

Why is your client wanting to call it labor only?
 

#4
juro  
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I don't know why.. They say i would never have known otherwise, but my job is to collect info.
 

#5
Doug M  
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I see this as a method to bypass the sales tax. I'll bet the contractor has a resale certificate. I have no idea about rules for sales tax in FL. I would assume it is subject to sales tax
 

#6
juro  
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#7
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My guess is they want to avoid contractor markup

Is the contractor using the appropriate accounting for long term contracts ?
 

#8
juro  
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HenryDavid wrote:
Is the contractor using the appropriate accounting for long term contracts ?


my guess is no.
 

#9
MWEA  
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In regards to long-term contracts for tax purposes, this made me think of a couple questions. This is not my area although I’ve been reading on the topic and I love to show my ignorance on this board!

New client is an exterior contractor, $8 million in sales. Cash basis and definitely meets the small contractor exception. While they have internal job costing software, everything is being reported for taxes on a strictly cash basis. If a down payment comes in, they post it to Sales in QB’s.

Two questions:
1. Is there any requirement they report differently on contracts that stretch over two tax years?

2. If they wanted to move to the CCM, I’m assuming they would need to submit a Change of Accounting request?
 

#10
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1. It’s not a long-term contract if it doesn’t overlap tax years.

2. Yes

Also - beware of the AMT adjustment for long-term Contracts ...
 

#11
juro  
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turns out, all the stuff got delivered to the client's office loading bay. several dozen pallets of material.

this is a surprise to me, the client implied or said to me that the stuff would all be delivered to the job sites.

so much for being a "labor-only" job :roll:

also no packing slips, bills of lading, etc have been provided to me. this is weird.
 

#12
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Uninstalled materials is another issue
 


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