Accounting under cost-plus-fixed-fee contracts;

              Accounting Research
BULLETINS
Issued by the
Committee on Accounting Procedure, American Institute of Accountants, 270 Madison Avenue, New York 16, N. Y. Copyright 1943 by American Institute of Accountants
December, 7942
No. 19
Accounting Under Cost-Plus-Fixed-Fee Contracts
THIS BULLETIN deals with accounting problems arising under cost-plus-fixed-fee contracts, hereinafter referred to as CPFF contracts.1
SUMMARY STATEMENT
(1) Fees under CPFF contracts may be credited to income on the basis of such measurement of partial performance as will reflect rea-sonably assured realization. One generally acceptable basis is delivery of completed articles. The fees may also be accrued as they are billable, under the terms of the agreement, unless such accrual is not reasonably related to the proportionate performance of the aggregate work or serv-ices to be performed by the contractor from inception to completion.
(2) Where CPFF contracts involve the manufacture and delivery of products, the aggregate amount of reimbursable costs and fee is ordi-narily included in appropriate sales or other revenue accounts. Where such contracts involve only services, or services and the supplemental erection of facilities, only the fee should ordinarily be included in rev-enues.
(3) Unbilled costs and fee under such contracts are ordinarily re-ceivables rather than advances or inventory, but should preferably be shown separately from billed accounts receivable.
(4) Offsetting of government advances on CPFF contracts against amounts due from the government on such contracts is permissible only to the extent that such items may under the terms of the agreement be offset in settlement, but a more desirable procedure in most cases will be to offset the advance against the receivable only if that is the treatment anticipated in the normal course of business transactions under the contract. In case of offset, the amounts offset should be adequately disclosed.
1The discussion herein is subject to such modification as may be required under censorship rules. See, for instance, statement of War Department, Bureau of Public Relations, October 28, 1942.
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