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' f ' CHI-ADA CORPORATION NOTES TO FINANCIAL STATEMENTS FOR THE YEAR ENDED DECEMBER 31,2014 Summary of Significant Accounting Policies Business Activity The company is a janitorial service contractor. It provides janitorial services to commercial and government facilities. The work is performed primarily under fixed- price contracts in the State of Florida. The lengths of the contracts vary but are typically more than one and half years long. Management uses estimates and assumptions in preparing these financial statements in accordance with generally accepted accounting principles. Those estimates and assumptions affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities, and the reported revenues and expenses. Actual results could vary from the estimates that were used. Revenue and Cost Recognition The company recognizes revenues from fixed-price construction contracts on the percentage-of- completion method, measured by the percentage of cost incurred to date to estimated total cost for each contract. That method is used because management considers total cost to be the best available measure of progress on the contracts. Because of inherent uncertainties in estimating costs, it is at least reasonably possible that the estimates used will change within the near term. Contract costs include all direct material and labor costs and those indirect costs related to contract performance, such as indirect labor, supplies, tools, repairs and depreciation. Selling, general and administrative costs are charged to expense as incurred. Provisions for estimated losses on uncompleted contracts are made in the period in which such losses are determined. Changes in job performance,job conditions and estimated profitability may result in revisions to cost and income, which are recognized in the period in which the revisions are determined. Changes in estimated job profitability resulting from job performance, job conditions, contract penalty provisions, claims, change orders and settlements, are accounted for as changes in estimates in the current period. The asset, "Cost and estimated earnings in excess of billings on uncompleted contracts," represents revenues recognized in excess of amounts billed. The liability, `Billings in excess of cost and estimated earnings on uncompleted contracts," represents billing in excess of revenues recognized. Cash Equivalents Cash equivalents consist of investments that are readily convertible into cash and generally have original maturities of three months or less. 7