What is project accounting?
Project accounting is an overview of revenue and costs for a specific project or assignment. The standard financial accounts show the results for the entire business. Project accounting breaks this down, allowing you to see which assignments are profitable and which are not.
In practice, each entry related to the project is tagged with a project code. The accounts can then be sorted by project without having to keep a separate, parallel set of books.
Why is project accounting important?
A business can be profitable overall, even while individual projects lose money. Without figures per project, it is difficult to see which assignments, clients, and pricing models actually pay off.
For most businesses, project accounting is a useful management tool, not a legal requirement. In the building, construction, and shipbuilding industries, however, specific requirements apply when the project's tender price or estimated turnover value exceeds 5G excl. VAT. These requirements stem from the Bookkeeping Regulations.
What should project accounts include?
The content should be tailored to the project, but the following elements are typically included:
Project revenue: amounts billed, as well as any completed work that has not yet been invoiced.
Direct costs: materials, purchases, subcontractors, and wages for those working on the project.
Hours and resource usage: how many hours were spent, and by whom.
Indirect costs: a share of overhead expenses such as rent, administration, and equipment.
Budget: expected revenue and costs, allowing you to compare with actual results.
Hours require particular attention. Time is often the project's largest cost, but it does not appear in the accounts until it has been converted into monetary terms, for example using an hourly cost per employee. Overheads can be allocated based on hours, turnover, or a fixed rate. The most important thing is to allocate consistently so that projects can be compared.
How to monitor project accounts in practice
Monitoring starts before the project is underway. Create the project with its own code and budget, and decide which costs should be allocated to it.
Along the way, vouchers and hours must be continuously tagged with the correct project. This is where most errors occur: an invoice without a project code ends up in the general accounts and makes the project appear more profitable than it actually is.
Compare actual results with the budget regularly, for instance every month or every VAT period. Variances discovered early can often be corrected. Once the project is completed, a post-calculation provides a better basis for pricing the next assignment.
For accounting firms, much of the work involves client routines: ensuring that project codes are used consistently and that hours and vouchers are submitted on time.
Project accounting in Catacloud
In Catacloud, you create projects and select the project as a dimension on each voucher line. Project accounting then displays revenue, costs, and profit per project, and project can also be used as a filter in the standard income statement report. Hours can be logged directly against the project so you can track time spent, while the project's net result is based on what has been posted. Read more about the project module in Catacloud.
