Project accounting
Encyclopedia
Project accounting is the practice of creating financial reports specifically designed to track the financial progress of project
s, which can then be used by managers to aid project management
.
Standard accounting
is primarily aimed at monitoring financial progress of organizational elements (geographical or functional departments
, divisions and the enterprise as a whole) over defined time periods (typically weeks, months, quarters and years).
Projects differ in that they frequently cross organizational boundaries, may last for anything from a few days or weeks to a number of years, during which time budget
s may also be revised many times. They may also be one of a number of projects that make up a larger overall project or program.
Consequently, in a project management environment cost
s (both direct and overhead) and revenue
s are also allocated to projects, which may be subdivided into a work breakdown structure
, and grouped together into project hierarchies
. Project accounting permits reporting at any such level that has been defined, and often allows comparison with historical as well as current budgets.
Project accounting is commonly use at government contractors, where the ability to account for costs by contract (and sometimes contract line item, or CLIN) is usually a requirement for interim payments.
Percentage-of-completion is frequently independently assessed by a project manager. Funding advances and actual-to-budget cost variances are calculated using the project budget adjusted to percent-of-completion.
Where labor costs are a significant portion of overall project cost, it is usually necessary for employees to fill out a timesheet
in order to generate the data to allocate project costs.
The capital budget processes of corporations and governments are chiefly concerned with major investment projects that typically have upfront costs and longer term benefits. Investment go / no-go decisions are largely based on net present value assessments. Project accounting of the costs and benefits can provide crucially important feedback on the quality of these important decisions.
An interesting specialized form of project accounting is production accounting, which tracks the costs of individual movie and television episode film production costs. A movie studio will employ production accounting to track the costs of its many separate projects.
Project
A project in business and science is typically defined as a collaborative enterprise, frequently involving research or design, that is carefully planned to achieve a particular aim. Projects can be further defined as temporary rather than permanent social systems that are constituted by teams...
s, which can then be used by managers to aid project management
Project management
Project management is the discipline of planning, organizing, securing, and managing resources to achieve specific goals. A project is a temporary endeavor with a defined beginning and end , undertaken to meet unique goals and objectives, typically to bring about beneficial change or added value...
.
Standard accounting
Accountancy
Accountancy is the process of communicating financial information about a business entity to users such as shareholders and managers. The communication is generally in the form of financial statements that show in money terms the economic resources under the control of management; the art lies in...
is primarily aimed at monitoring financial progress of organizational elements (geographical or functional departments
Departmentalization
Departmentalization refers to the process of grouping activities into departments.Division of labour creates specialists who need coordination. This coordination is facilitated by grouping specialists together in departments....
, divisions and the enterprise as a whole) over defined time periods (typically weeks, months, quarters and years).
Projects differ in that they frequently cross organizational boundaries, may last for anything from a few days or weeks to a number of years, during which time budget
Budget
A budget is a financial plan and a list of all planned expenses and revenues. It is a plan for saving, borrowing and spending. A budget is an important concept in microeconomics, which uses a budget line to illustrate the trade-offs between two or more goods...
s may also be revised many times. They may also be one of a number of projects that make up a larger overall project or program.
Consequently, in a project management environment cost
Cost
In production, research, retail, and accounting, a cost is the value of money that has been used up to produce something, and hence is not available for use anymore. In business, the cost may be one of acquisition, in which case the amount of money expended to acquire it is counted as cost. In this...
s (both direct and overhead) and revenue
Revenue
In business, revenue is income that a company receives from its normal business activities, usually from the sale of goods and services to customers. In many countries, such as the United Kingdom, revenue is referred to as turnover....
s are also allocated to projects, which may be subdivided into a work breakdown structure
Work breakdown structure
A work breakdown structure , in project management and systems engineering, is a deliverable oriented decomposition of a project into smaller components. It defines and groups a project's discrete work elements in a way that helps organize and define the total work scope of the project.A work...
, and grouped together into project hierarchies
Hierarchy
A hierarchy is an arrangement of items in which the items are represented as being "above," "below," or "at the same level as" one another...
. Project accounting permits reporting at any such level that has been defined, and often allows comparison with historical as well as current budgets.
Project accounting is commonly use at government contractors, where the ability to account for costs by contract (and sometimes contract line item, or CLIN) is usually a requirement for interim payments.
Percentage-of-completion is frequently independently assessed by a project manager. Funding advances and actual-to-budget cost variances are calculated using the project budget adjusted to percent-of-completion.
Where labor costs are a significant portion of overall project cost, it is usually necessary for employees to fill out a timesheet
Timesheet
A timesheet is a method for recording the amount of a worker's time spent on each job.-Use:Originally developed for an employer to determine payroll, timesheets are not just for payroll any more. Timesheets may record the start and end time of tasks, or just the duration. It may contain a...
in order to generate the data to allocate project costs.
The capital budget processes of corporations and governments are chiefly concerned with major investment projects that typically have upfront costs and longer term benefits. Investment go / no-go decisions are largely based on net present value assessments. Project accounting of the costs and benefits can provide crucially important feedback on the quality of these important decisions.
An interesting specialized form of project accounting is production accounting, which tracks the costs of individual movie and television episode film production costs. A movie studio will employ production accounting to track the costs of its many separate projects.
See also
- Accounting
- List of accounting topics
- Accounting softwareAccounting softwareAccounting software is application software that records and processes accounting transactions within functional modules such as accounts payable, accounts receivable, payroll, and trial balance. It functions as an accounting information system...
- Project managementProject managementProject management is the discipline of planning, organizing, securing, and managing resources to achieve specific goals. A project is a temporary endeavor with a defined beginning and end , undertaken to meet unique goals and objectives, typically to bring about beneficial change or added value...
- Project management softwareProject management softwareProject management software is a term covering many types of software, including estimation and planning, scheduling, cost control and budget management, resource allocation, collaboration software, communication, quality management and documentation or administration systems, which are used to...
- Business process improvementBusiness process improvementBusiness Process Improvement is a systematic approach to help an organization optimize its underlying processes to achieve more efficient results. The methodology was first documented in H. James Harrington’s 1991 book Business Process Improvement. It is the methodology that both Process...
- Project managerProject managerA project manager is a professional in the field of project management. Project managers can have the responsibility of the planning, execution, and closing of any project, typically relating to construction industry, architecture, computer networking, telecommunications or software...
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