Project accounting

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Project accounting (sometimes referred to as job cost accounting) is the practice of creating financial reports specifically designed to track the financial progress of projects, which can then be used by managers to aid project management.[1]

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 (mkkj weeks, months, quarters and years).[2]

In Australia, project accounting workers earn up to an average AU$79,725 per year. Most people working in this field move to a different position after approximately 20 years. The jobs that normally increase pay towards this job is Budget Managing and Cost Accounting.[3]

Projects differ in that they frequently cross organisational boundaries, may last for anything from a few days or weeks to a number of years, during which time budgets 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.[4]

Consequently, in a project management environment costs (both direct and overhead) and revenues 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.[5]

Project accounting is commonly used by 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.[5]

Percentage-of-completion is frequently independently assessed by a project manager. It includes the continuous recognition of revenues and income related to longer-term projects. By doing this, the seller is able to identify some gain or loss relevant to a project in every accounting period that is ongoing active. Funding advances and actual-to-budget cost variances are calculated using the project budget adjusted to percent-of-completion.[6][7]

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.[6]

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.[5]

An interesting specialised 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.[5]

Percentage of Completion Method[edit]

The percentage-of-completion method permits companies to record profits as development is made toward the finishing of the project. This method is not to be used when compelling uncertainty's about the percentage of completion of the remaining costs to be incurred. The method instead works at its finest when it is rationally likely to estimate the stages of the project in process.[7]

The percentage-of-completion may be measured in any of the resulting ways:[7]

Cost-to-cost method: This is an example of the contract cost acquired to date the total expected cost. The price of the products already bought for a contract however have not yet been installed should not be added in the perseverance of the percentage of completion of a project, not unless they were particularly created for the contract. Also, assign the cost of equipment over the contract course, rather than direct, unless title to the supplies is being transported to the customer.

Efforts-expended method: This is the share of effort consumed to date in comparison to the total effort expected for the agreement. E.g. the percentage of completion may possibly be established on direct work hours, machine hours, or material size.

Units-of-delivery-method: This is the portion of units delivered to the buyer to the overall number of units to be brought under the terms of a contract. It should only be in use when the builder produces a number of units to the requirements of a buyer. The recognition is established on:

  • For revenue, the contract price of units delivered
  • For expenses, the costs reasonably allocable to the units delivered

However, the necessary steps are the following:[7]

  1. Subtract the total predicted contract costs from total approximated revenues to appear at the total estimated gross margin.
  2. Measure the range of process toward completion, using one of the methods mentioned above.
  3. Increase the total likely contract revenue by the estimated finishing percentage to arrive at the total amount of revenue that can be acknowledged.
  4. Subtract the contract revenue allowed to date through the foregoing period from the complete amount of revenue that be accepted. Recognise the development in the current accounting period.
  5. Consider the cost of the received revenue in the same manner. This means raising the same percentage of completion by the total supposed contract cost, and subtracting the amount formerly realised to arrive at the cost of collected revenue to be recognised in the current accounting period.

Calculations[edit]

The following calculation is used to determine the completion percentage:[8]

Percent Complete = Cost Incurred to Date / Total Cost Estimate

The current period revenue to be recognised during production would then be:

Current Period Revenue = (Percent Complete x Total Contract Revenue) - Revenue Recognised in Prior Periods

Production Accounting[edit]

Production Accounting involves the person who is essential in the film industry to manage the finances and financial records during the film production. Working in this position requires being in close association with the producer and the production office for the development of the film budget and to arrange schedules. Further into this role, as the accountant for a film, day-to-day duties are expected such as the normal accounting tasks of an office and maintaing the budget by recording the expenses accumulated to make secure they do not go over the allocated budget.[9]

Other duties a the production accountant include:[9]

  • Managing the payroll
  • Managing the petty cash
  • Analysing costs
  • Provide weekly cash reports
  • Estimating future costs

Financial Accounting[edit]

Financial Accounting is a functional branch of accounting that keeps record of the companies financial activity. Using standardised guidelines, the transactions are undertaken, summarised, and given in a financial report or statement such as an income statement or balance sheet.[10]

Financial accounting creates the following general-purpose, external, financial statements:[10]

  1. Income statement - Reports a company's advantage during a certain period of time.
  2. Balance sheet - Separated into three sections: (1) assets: reports the company's assets such as cash and accounts. (2) liabilities: reports the company's duties. These are the obligations due towards the end of the balance sheet. (3) stockholders': the difference between assets and liabilities.
  3. Statement of cash flows - Reveals the change in a company's cash and equivalents that have change due to movement.
  4. Statement of stockholders' equity - Lists the alteration in stockholders' equity for the same duration as both the income and cash flow statement.

Improvements[edit]

Project Accounting has now grown to Microsoft DynamicsTM AX helping complete and make easy-to-use module that helps you smoothly manage project accounting within your company with entire financial overview and control and full real-time integration into SCM financial programs. With the Microsoft DynamicsTM AX now in process providing a strong platform to help succeed in a competitive globally environment, it allows for challenges to be met, such as maintain tighter control of projects, improve cash flow management, improve productivity and obtain strategic business insight.[11]

Features also include:[11]

Easy to use
  • Intuitive layout and structure with user-adjustable menus,

forms and reports with built-in help.

Record important details
  • Employees or consultants can enter their hours via the Internet
  • Make your expense, item and fee transactions through journals
  • Create your own project hierarchy
  • Follow up on the delivery status of delivery and purchase and sales orders
Streamlined invoicing
  • Use flexible line property set-up to capture chartable and non-chartable costs
  • Adjustment of transaction before creating your invoice proposal
  • Edit invoice proposal before financial invoice
  • Use invoice control to follow-up on the chartable status of a project against the quotation
Project management
  • Time & material, cost and time projects
  • Use the wizard to copy project hierarchy
Accounting control
  • Tight integration with General Ledger in Microsoft Dynamics AX and supply chain management tools
  • Follow up on budgets versus actual and transfer budgets to ledger
Inquiry, reporting and analysis
  • Standard reports to report profit & loss, work in progress, consumed costs, payroll allocation and invoice on account from the 3 primary view which is, project category, employee /items
  • The above report can be printed for one period, two periods or actual versus budget
  • Graphical overview of project hierarchy structure with available Gantt charts
Handling long term projects
  • Fixed-price projects
  • Invoicing based on a milestone plan
  • Create estimate to control work in progress based on completed percentage or completed contract
  • Investment project helps capitalise cost of a project to your fixed assets
Work in progress & revenue recognition
  • Periodically match cost and revenue in the same ledger period
  • Accrue revenue on time of the cost, alternatively move the cost to the time of the revenue by posting WIP to cost value or sales value WIP can be handled on time & material, fixed price and investment projects

See also[edit]

References[edit]

  1. ^ "Project Accountant Interview Questions | MockQuestions". www.mockquestions.com. Retrieved 2016-05-17. 
  2. ^ Ross, Stephen A; Westerfield, Randoplh; Jordan, Bradford D (2010). Fundamentals of Corporate Finance Standard Edition. McGraw-Hill Irwin. ISBN 0073382396. 
  3. ^ "Project Accountant Salary (Australia)". PayScale - Human. Capital. Retrieved 2016. 
  4. ^ Rothergill, Rik (4 March 2014). "Abel’s Project Accounting". Abel Software. 
  5. ^ a b c d "Software Guide and Definitions". Accounting Software Experts. 2015. 
  6. ^ a b Thomson, Jessica. "What You Know About Project Accounting". editorialtoday.com. Retrieved 2016. 
  7. ^ a b c d "Percentage of Completion Method". Accouting Tools. Retrieved 2016. 
  8. ^ "Percentage-of-Completion Method". Money-Zine. 
  9. ^ a b "What Is The Job Of Production Accountant?". Accounting Crossing. Retrieved 2015. 
  10. ^ a b "Financial Accounting (Explanation)". Accounting Coach. 
  11. ^ a b "Project Accounting in Microsoft Dynamics AX" (PDF). Project Accounting. 

External links[edit]