Work Certified, Work Uncertified and Retention Money

Understand Work Certified, Work Uncertified and Retention Money

Key rules to remember

Cash received

Cash received = Work certified − Retention money

If retention is a percentage of certified value: Cash received = Work certified × (100 − retention %) ÷ 100.

Retention money

Retention money = Work certified × retention %

Apply the percentage to work certified, not to cost or to the total contract price, unless the question says so.

Contractee's account balance

Balance = Work certified − Cash received

This equals the retention money due from the contractee.

Valuation rule

Work certified at contract price; work uncertified at cost

No profit is included in work uncertified.

Credit side of contract account

Work certified + Work uncertified + Closing materials at site + Plant at written-down value

Notional profit = total credits − total debits.

How to solve Work Certified, Work Uncertified and Retention Money questions

1. 1Read the data and list three separate figures: cost incurred, work certified and cash received. Do not mix them.
2. 2Note the retention percentage and what it applies to. Normally it applies to work certified.
3. 3Compute retention money = work certified × retention %. Then cash received = work certified − retention, unless the question gives cash directly.
4. 4Value work uncertified at cost. Add no profit to it.
5. 5Prepare the contract account. Debit all costs. Credit work certified, work uncertified, closing materials and plant at written-down value.
6. 6Find the balancing figure, which is the notional profit or loss.
7. 7Prepare the contractee's account: debit work certified, credit cash received, and show the balance as retention due.
8. 8Check that the contractee's balance equals the retention money, then state the answer clearly.

Quickest way: Three-line shortcut for certified, cash and retention

Common mistakes in Work Certified, Work Uncertified and Retention Money

• Valuing work uncertified at contract price

  Students treat it like work certified and add profit.

  Fix: Uncertified work is always at cost. Only certified work is at contract price.

• Calculating retention on cost or on the total contract price

  The question mentions several amounts and students pick the wrong one.

  Fix: Unless stated otherwise, retention is a percentage of work certified.

• Treating cash received as work certified

  Both relate to the contractee, so students treat cash received as if it were the value of work certified.

  Fix: Cash received is certified value less retention. It is not credited to the contract account. It goes to the contractee's account.

• Leaving work uncertified out of the contract account

  Students focus on certified work, which is the visible figure.

  Fix: Credit both certified and uncertified work. Missing uncertified work understates profit.

• Treating retention as a loss or an expense

  The money has not been received, so it looks lost.

  Fix: Retention is a receivable. It is part of work certified and is collected later.

• Forgetting plant and closing materials on the credit side

  The question focuses on certification, so students stop early.

  Fix: Always scan the data for plant at site and materials in hand at year end before finding the balancing figure.

Worked examples