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Project Cost Accounting

Why is project accounting different from corporate accounting, and what is involved?

 

First, Corporate Finance

    Corporate finance deals with

·         The organization's financial affairs

·         E.g. its financial strategy and health

·         The annual financial status

·         Year on year

·         And the financial outlook for shareholders

·         And its sources of funds

·         For operations and projects

     It is a mandatory and well-established activity

·         For almost every type of organization

 

Then there is Corporate Accounting

    In a large organization

·         Corporate Finance may be under a "Financial Controller's Department"

·         While Corporate Accounting is another department

·         Otherwise the two are together

·         Under "Corporate Finance and Accounting"

    Corporate Accounting

·         Is also a well-established discipline

·         With well-established standards

 

What is "accounting"

    Accounting may be defined as

·         The art of recording, classifying, and summarizing in a significant manner and in terms of money, transactions and events which are, in part at least, of a financial character, and interpreting the results thereof

·         Management Accounting, Anthony & Reece, 1975

·      Accounting is the language of business

·         And must be supported by a well-oiled system

·         These days, almost always electronically

·         For collecting, storing and retrieving cost data

·         To the nearest penny!

 

Project Cost Accounting - 1

·      Project accounting is an essential service

·         For supporting Project Cost Management

·         And is essentially different from corporate accounting

·      Project accounting may be defined as

·         The process of identifying, measuring, recording and communicating project cost data

·         Within the project time frame

·         And not just the fiscal time frame

·         It also includes data that

·         Represents the cost of work to complete the project

·         Is therefore of a speculative nature

·         And estimated to a reasonable round number

 

Project Cost Accounting - 2

Activities include

·         Maintenance of project ledgers

·         Showing WBS budget line items

·         And commitments, expenditures and forecasts

·         Ensuring the integrity of the project budget

·         Through approved scope changes, fiscal changes, and contingency reallocations

·         Verification of invoices and their correct holdback, coding and WBS allocation

 

Project Cost Accounting - 3

·         Verification of overhead charges and their distribution

·         Issuing monthly project cost reports that include

·         Forecast final costs based on project team input

·         And total and period variances

·         Flagging significant projected overruns or underruns

·         Ensuring final payments of hold back on all contracts

·         And closing of accounts when complete

·         Transfer of project expenditures from project financing to the organization's fixed asset records

·         Upon total project completion

 

Summarizing the differences - 1

Corporate accounting

·         Is a mandatory activity

·         Takes a historical view only

·         Conforms to generally rigid standards

·         I.e. Generally Accepted Accounting Practices (GAAP)

·         Is subject to regular financial audit

·         Spans fiscal periods

·         Typically takes time to report

·         And then by the organization's standard chart of accounts

·         Includes accruals

·         And is accurate to the nearest penny

 

Summarizing the differences - 2

Project accounting

·         Should be a mandatory project service

·         Takes a futuristic view

·         Standards have not been established

·         May or may not be subject to audit

·         But should be part of any Project Success Review

·         Spans the project life span

·         Irrespective of the corporate fiscal accounting

·         Must be delivered within a few days of the end of each reporting period

·         Relies on forecasts, not accruals

 

Footnote

You cannot manage a project effectively without a Project Cost Management System

And

Timeliness is more important than absolute precision!