What Is Project Accounting?

Project accounting is a specialised form of accounting that focuses on tracking and managing the financial aspects of individual projects within a company. It involves monitoring project budgets, costs and financial transactions to provide accurate and timely financial reports. Project accounting enables project managers and accountants to track the progress and financial performance of each project, ensuring that they are completed on time and within budget.

Project accounting is often a component of a project-based enterprise resource planning (ERP) or professional services automation (PSA) system, although it can also be used independently.

Unlike project accounting software, standard accounting systems do not factor in the complex dimensions that projects bring to a business and their impact on business processes. Projects are truly an afterthought in standard accounting systems and require customisations to operate with a project point of view, which results in higher up-front costs and a higher total cost of ownership.

On the other hand, project accounting software specialises in the accounting functions essential to project-based organisations.

Why is project accounting important for project-based businesses?

For businesses that deliver projects, project accounting enables them to track and analyze the finances of each project. It helps project managers plan and control project budgets, costs and reports. It also helps them make smart decisions, use resources well and finish projects on time and within budget.

Project accounting shows any differences between actual and planned costs and how to fix them. It also shows key indicators of project success, such as revenue, completion and performance.

Using project accounting methods gives project-based businesses insight into their project finances, leading to transparency, control and business success.

Project accounting provides a systematic approach to financial tracking and managing the financial aspects of individual projects, helping businesses gain better control over their project costs, budgets and profitability.

Implementing project accounting practices allows businesses to achieve accurate tracking and real-time visibility into the financial health of their projects. By tracking actual costs against the project budget, project managers can identify potential overruns and take proactive measures to stay on track, ensuring that projects are completed within budget and financial goals are met.

Project-based accounting also plays a crucial role in resource management. By tracking labor hours and expenses associated with specific tasks, businesses can optimise resource allocation and improve efficiency. This results in better project scheduling and reduced costs.

Finally, project accounting enables businesses to generate comprehensive financial reports and statements tailored to each project. These reports support decision-making and allow project managers to evaluate project profitability and assess overall project success.

By implementing project accounting software and practices, businesses can automate and streamline the project accounting process, eliminating manual errors and saving time. Key performance indicators (KPIs) can be tracked easily, providing valuable insights into project performance and enabling businesses to make data-driven decisions.

Project accounting is a way of tracking and managing the finances of individual projects within a company. It allows businesses to understand the financial performance of each project, helping them make informed decisions and ensure the success of future projects.

In simple terms, project accounting involves creating a separate accounting record for each project. This record tracks the project's budget, costs and financial transactions. It also allows the project team to monitor the progress of the project, compare actual costs to the budget and analyze the financial performance.

Project accounting also helps in managing the project's scope and ensuring that it stays within the allocated budget. It helps in identifying cost centers and indirect costs, enabling better financial management and budget control.

Project Accounting Principles

The key principles of project accounting include tracking project costs in real time, maintaining a "single source of truth" for project-related financial transactions and recognising revenues and expenses based on the percentage of completion method. By following these principles, project accounting provides businesses with a clear understanding of the financial performance and progress of individual projects, enables effective financial management and decision-making and helps ensure projects are completed on time and within budget.

With the use of project accounting software, project accountants can efficiently manage project finances, track project tasks and budgets and generate financial reports to measure project performance against key performance indicators.

The Role of the Project Accountant

Project accountants are responsible for managing the financial aspects of individual projects, ensuring that they are completed within budget and on time.

Project accountants play a crucial role in tracking and reporting the financial health of the project by analyzing and monitoring actual costs, project budgets and project tasks. They work closely with the project team to provide real-time financial reports and key performance indicators.

Additionally, project accountants ensure that project costs are allocated accurately and that all additional expenses and overheads are accounted for. They also contribute to financial planning by providing insights into the profitability of future projects and helping identify potential risks or areas of improvement.

Finally, project accountants use project accounting software and other tools to effectively manage resources, track labor hours and monitor project progress. They are responsible for preparing financial statements, such as income statements and ensuring that project finances align with project goals and objectives.

Project Accounting Best Practices

To ensure success when tracking project financials, companies should consider the following project accounting best practices:

• Track financials on a per-project basis: Project-based accounting follows the principle that each project is a separate entity with its own budget, costs and financial records. Tracking financials on a per-project basis gives the project manager a clear understanding of the financial performance of each project.
• Cost center management: Projects should be assigned to specific cost centers, allowing for better resource allocation and cost tracking. Managing costs in this way enables project managers to monitor expenses against budgeted amounts and identify variances.
• Use the percentage of completion method: Project accounting uses the percentage of completion method to recognise revenue and costs over the lifecycle of a project. This revenue recognition method provides a more accurate reflection of a project's financial performance than recognising revenue at project completion.
• Accurate time and expense tracking: Accurate time and expense tracking is crucial for project accounting. This best practice ensures that all costs related to a project, including labor hours, material expenses and overhead costs, are accurately recorded and allocated to the appropriate project.
• Real-time reporting: Project accounting emphasises the importance of real-time financial reporting. Robust reporting allows project managers and stakeholders to access up-to-date financial information on project performance, enabling informed decision-making and timely adjustments.

By adhering to these best practices, project-based businesses can effectively manage their finances, accurately track project costs and make data-driven decisions to ensure the profitability and success of their projects.

Project-based businesses that derive revenues and profits from the projects they manage for their clients use project accounting to power their business and enable success.

Architecture and Engineering (A&E) Firms

Whether your A&E firm is small and looking to grow or a larger sophisticated organisation, a project accounting system leverages financial functions unique to project-based organisations. The resulting data helps you analyze your current state and strategise your leap to the next level of success.

With project accounting software, Elliot Wood runs the business on facts rather than just on hunches.

Learn more about project accounting for A&E firms >

Marketing Agencies

Marketing and creative agencies value project accounting because it makes managing finances easier. A project accounting system takes care of the agency's left-brain activities, leaving right-brained creatives free to do what they do best.

Global creative content agency, We Are Cognitive uses project accounting software to keep its video projects on time and on budget with resource management and accounting specifically for agencies.

Learn more about project accounting for marketing agencies >

Consulting Firms

Project accounting software supports the financial functions that are unique to a consulting firm's engagement lifecycle, ensuring that they have visibility and control across all of their projects.

Learn more about project accounting for consulting firms >

Project-based organisations have distinct requirements and they need to view their business in three dimensions: accounts, organisations (departments or business units) and projects.

Project management excellence is at the core of high-performing project-based firms. Unfortunately, generic accounting programs like QuickBooks fall short on the functionality that project-based firms require to be successful—planning and managing resources, handling project variation and complexity and easily adapting to customer requests. Generic solutions struggle to provide deliverables tied to projects. Businesses often respond by using predictive costing methods and reconciliation to connect accounts receivable and accounts payable transactions. They may spend weeks summarising data so leaders can make business decisions.

A project accounting solution helps firms make better business decisions through improved visibility and control across all projects. Every transaction is tied to:

• a general ledger account,
• an organisation (the individual or team doing the work),
• and a project (the product or service delivered to a customer).

Linking these elements produces accurate and timely deliverables that are the lifeblood of any business:

• Financial reports
• Invoices
• Payroll
• Project status reports
• Project P&L
• A robust audit trail

Project accounting systems add value to project-based organisations because they:

• Are tailored for project-based businesses: It makes no sense to use a generic solution, which cannot: handle project variables like prepayments, different billing types and unorthodox work breakdown structures; track time, resources, expenses and work-in-progress; split time between phases; calculate direct and indirect project costs; or attribute these factors to the appropriate project. These limitations can negatively impact your firm's utilisation, profit margin, cash flow and data accuracy. That's why project accounting systems are purpose-built for project-centric organisations.
• Provide real-time visibility: If your firm struggles with data accuracy and timeliness, spends too much time compiling data or bases business decisions on guesstimates, project accounting software will enable you to spend more time analyzing real-time data rather than gathering it so you can focus on improving your project planning, execution and profitability.
• Enable firms to manage, optimise and deliver successful projects: A real-time customizable project dashboard is one of the biggest benefits of a project-based accounting system. Strong project management improves the client experience, profit margin, efficiency and resource utilisation. Generic accounting systems without integrated project management are confined to back-office accounting staff. With restricted access to information, project managers are dependent on accounting for information, which impedes timely business decisions.

Effective project accounting software includes these key features, many of which help to maximise productivity and revenue:

• Financial management: Finance teams handle many responsibilities that are key to success and growth. Project accounting software streamlines back-office processes by:
  • Reporting on project costs, revenues, profits and operations
  • Managing cost and charge rates
  • Shortening the billing cycle and improving accuracy by creating draft and final invoices electronically to be reviewed and approved online
• Budget and Forecasting:Project-based accounting tracks costs for every transaction and every transaction is tied to a project. Projects can be grouped by portfolio or product line or broken down into line items, work breakdown structures and charge codes governing the costing of individual resources. The system monitors and reports on forecast and actual costs. You’ll know which projects are most profitable, which are operating at a loss and which project managers have the best track records.
• Revenue Recognition: A variety of features efficiently apply the steps of revenue recognition standards.
• Manage Indirect Rates: Without a project accounting system, it’s challenging to manage the costs of doing business (rent, employer’s portion of payroll taxes, etc.) that aren’t directly tied to a project. An indirect rate derived from these costs will help you cover all costs.
• Billing and Invoicing: Unlike generic systems, project-based accounting generates bills based on customers’ formulas—in customer-specific formats—generated from pre-validated and approved charges, thus reducing questions about invoices, speeding up payments and improving cash flow.
• Time and Expenses: A web-based time and expense entry system with automated approval and project allocation allows you to share real-time project information, capture and report data in different currencies and create an audit trail. Information is consolidated into one database, streamlining business processes and eliminating redundancy and error.
• Project Reporting and Dashboards: Business intelligence turns a data-rich, knowledge-poor organisation into a knowledge-rich organisation. You can assess results by project, department, account, customer, organisation, vendor, etc. Each dashboard is tied to a KPI or metric.

The selection process is more important than ever, because you’re not just buying a tool; you’re choosing a trustworthy partner who will collaborate with you through the digital transformation of your business. Whether you’re seeking a new project accounting system or re-evaluating vendors, consider these criteria:

1. A comprehensive, purpose-built solution: Your project accounting system should be designed with your industry in mind, not a generic solution requiring customisation to your requirements. Choose a solution that gives your organisation and project managers the greatest visibility so you can plan ahead.
2. A respected industry reputation: Is your vendor a respected leader in your industry? Look outside of the product and observe the vendor’s influence in the industry.
3. Vendor product accountability: Your vendor should own and be accountable for the solution and its roadmap. If a vendor cannot be fully transparent, you may open your organisation up to risk.
4. Scalability: Look for a solution that can easily accommodate your company’s growth strategy.
5. Transparent total cost of ownership: Recurring costs should be clear from day one. Pricing models should outline all details.
6. Invested in customer care: Look for a vendor independently recognised as having superior and flexible customer service plans, your main line of communication after implementation.

Our mission is to deliver solutions that help our customers connect and automate the project lifecycle that fuels their business. We believe that better software means better projects. Our industry-focused expertise makes your projects successful and helps you achieve performance that maximises productivity and revenue.

Our Users Love Us

Thanks to our Deltek Project Nation customers, we have been named best in Government Contracting and Professional Services! Our industry-specific solutions—Ajera, Costpoint and Vantagepoint—continue to be recognised in the Project-Based ERP Leader category.

See Why Our Users Love Us