Direct Labor - Projects
Code: 5132Account Information
| Financial Statement | Income Statement |
| Normal Balance | Debit |
Definition
Wages of workers working directly at project sites, such as construction workers, carpenters, and steel fixers.
📐 IFRS vs US GAAP Accounting Treatment
IFRS: Direct labor cost is recognized as expense when incurred (when wages are earned), even if not yet paid.
IFRS: Measured at gross wages earned by workers (including additional benefits such as insurance and leave). GAAP: Same measurement with benefit details.
IFRS: Disclose total direct labor cost and any additional benefits. GAAP: Additional disclosures on retirement plans.
Example: 10 workers × SAR 200/day × 25 days = SAR 50,000 direct labor cost for the month.
GAAP: Direct labor cost recognized when incurred.
GAAP: Measured at gross wages earned by workers.
GAAP: Additional disclosures on retirement plans.
Example: 10 workers × SAR 200/day × 25 days = SAR 50,000.
IFRS: Direct labor costs are recognized when incurred (when wages are earned). GAAP: Same treatment with details for additional benefits.
❓ Frequently Asked Questions
A: Direct labor is wages of workers who work directly at the project site and whose hours can be tracked per project, such as: construction workers, carpenters, steel fixers, painters, tile workers, electricians, and plumbers.
A: Direct labor wages are recorded with the entry: Dr. Direct Labor - Projects (or Contracts in Progress - Asset), Cr. Salaries Payable (or Bank Account if paid immediately).
A: Labor hours per project are tracked using a Timesheet System where each worker records the number of hours worked on each project daily. These hours are compiled weekly or monthly to calculate cost.
A: Waiting time (without work) and paid leave for direct labor are allocated to projects as indirect expense (overhead), or charged to general expenses if fair allocation is difficult.
A: Direct labor works at the project site and their hours can be tracked per project. Indirect labor (e.g., production supervisors, maintenance workers, shared equipment drivers) cannot be easily tracked per project, and their costs are allocated to projects as indirect overheads.