What type of operation is called contracting operation?

What type of operation is called contracting operation?

In any type of operation that includes the following main elements, it is called a contracting operation.

Employer:
It is a natural or legal person who assigns certain executive operations to the contractor in the form of a contract.
Contractor:
A natural or legal person who undertakes the executive operations specified by the employer in the form of a contract.
Contract:
The legal relationship between the employer and the contractor that causes an obligation and carries the obligation and includes: the subject of the work, the duration of the work, the amount of the contract, the obligations of the employer and the contractor.

Types of contracts (According to Accounting Standard No. 9)

Lump-sum contract: It is a long-term contract whereby the contractor agrees to a lump-sum (certain) amount for the entire contract or a fixed rate for each unit subject to the contract, which in some cases may be subject to adjustment based on specific articles.
((In this situation, if the contractor spends less than the amount received by the employer, it is considered a profit for him))

Trust agreement (contract with fees based on expenses): It is a long-term contract by which acceptable or specified expenses are paid to the contractor and a certain percentage of said expenses or a fixed fee is also paid to the contractor.

Note: The duration of the contract should not be used as a criterion to identify the type of contract.

In the types of contracts, long-term contracts have been talked about, but what is a long-term contract?

Definition of long-term contract (according to Accounting Standard No. 9):

A long-term contract is a contract that is concluded for the design, production or construction of a single (specific and unique) and substantial asset or provision of services (or a combination of assets or services that together form a project) and the time required to complete the contract It is mainly the case that the activity of the agreement is placed in different financial periods.
A contract that is considered long-term according to this standard will usually be carried out over a period of more than one year. However, a period of more than one year is not the main characteristic of a long-term contract.
Some contracts with a term of less than one year, whenever they have such a relative importance in terms of the activity of the period, that the failure to reflect the income and operating expenses and the profit related to it leads to the distortion of the income and operating expenses and the results of the period and the failure to present a favorable image by the financial statements. should be considered as a long-term contract, provided that the procedure adopted in the business unit is uniformly applied from year to year.

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What we will say next:
Common methods of accounting for long-term contracting contracts
Contractor records in the contractor’s offices

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