Government contract receivables usually are shown separately from other receivables in the balance sheet (or otherwise disclosed in the notes to financial statements).
There is a difference in character between billed items and unbilled costs and such amounts shall be presented separately on the balance sheet.
Termination claims shall be classified as a current asset.
Termination has the effect of converting an active contract in process into a claim, or, from an accounting standpoint, from contract inventories and other charges into an account receivable. This receivable arises in the regular course of business; it is part of the working capital; and in view of the provisions made for financial assistance to the contractor during the period of termination, collection in large part may be expected within a relatively short time. The termination claim shall therefore be classified as a current asset, unless there is an indication of extended delay, such as serious disagreement pointing to probable litigation, which would exclude it from this classification.
Although a claim may be composed of several elements representing reimbursable items of special equipment, deferred charges, inventories, and other items, as well as claims for profit, it is preferable to record the claim in one account. The total of termination claims shall be presented separately from other receivables. Claims directly against the government shall be segregated from claims against other contractors.
To assure adequate financial assistance to contractors, legislation and regulations provide in some circumstances for partial payments and in others for such payments or guaranteed loans from the effective date of termination until final settlement. Partial payments shall be recorded as reductions of the termination claim receivable.
The costs and expenses chargeable to the termination claim are given their usual classification in the accounts.
In reporting cash flows from operating activities, progress, and advance payments received on contracts shall be reported gross, regardless of whether those payments have been applied against unbilled contract receivables or accumulated costs of contracts in progress in the balance sheet. The manner of reporting depends on whether the entity uses the direct method or indirect method as follows:
- a
Direct method. Entities that use the direct method in reporting cash flows from operating activities shall show progress and advance payments received on contracts as a separate major class of cash receipts.
- b
Indirect method. Entities that use the indirect method shall show progress and advance payments as a separate adjustment in reconciling net income to net cash provided for operating activities.