What is Project Accounting?
Posted on: May 17, 2014 | By: Jim Bertler | Professional Services
In this 3rd article on managing professional service organizations we will be discussing Project Accounting or sometimes referred to as Project Management. Once you have established your chart of accounts and have designed effective financial reports, the next step in assisting the management of your firm is to look at project level information. This is where Project Accounting can assist. So, what is Project Accounting?
Project Accounting provides for the ability to maintain tight control over project direction, costs, execution, and budget; support resources effectively; and ensure accurate billing and accounting through tight integration with financials, inventory and accounts receivable.
A Project Accounting system can be considered another subsidiary ledger, just like your Accounts Receivable or Accounts Payable ledgers. This ledger contains the activities associated with all of the projects provided to clients within the firm. A review of this ledger will reflect all activities over time charged to the project, whether billable to the client, or not and the related billings dependent upon the time of project (Time and Materials, Fixed Fee or Percentage of Completion). An important element to this review is the ability to review those charges that have not been billed to the client to date.
Another important aspect of maintaining a project accounting system is the easy access to the performance of the firms’ resources. Personnel can be evaluated based upon their time utilization. Other resources can be assessed based upon the revenue generated or time charged to projects in comparison to the cost of maintaining such resource.
Most Project accounting systems also include a component for the tracking of contracts initiated with the client, which projects are associated with the contract, and the actual performance against the contracted budgeted amount(s). Future change orders or additional statements of work can also be included and tracked. This visibility provides for a total picture of the companies relationship with the client, the related projects, and their status both in relationship to the contract for billings, and to the budget for costs.
It is important to differentiate Project Accounting systems which focus on the financial and utilization aspects of projects and resources, from a Project Scheduling or Resource Planning system which focuses on the time allocation and efficient deployment of resources.
Future topics in this series will discuss each of the various components of a Project Accounting system and their help in helping to manage the company.
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