Project Based Accounting
Project Based 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.
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 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.
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.
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.