If your business relates to contracts, you maybe often wondering whether there is a way that you can monitor and manage the financial performance for each contract separately. The answer is: Yes, there is a way - project accounting.
Project accounting sees each contract as an individual project. It is one of the essential components of project management. It provides view for financial performance by producing project reports for individual or all projects and help project managers to make financial decision or improve the way of management to achieve their objectives.
Project accounting is part of accounting system but differs from standard accounting, as standard accounting is focus on the financial performance of a business as a whole for a fixed time period, regardless how many projects the business is handling. Whilst project accounting manages these projects separately. Each project is considered as an individual cost and profit unit, whose revenue, cost of sales, invoicing, payable and receivable and so on and so force are recorded under individual project. Therefore, P&L can be produced separately. In the meantime, variance between budget and actual figure and margin can be calculated and analysed easily to see whether the profit target is achieved by each project.
Project accounting is widely used in constructing, manufacturing, engineering, real estate management business.
Example 1: ABC Company is an engineering company, it installs security systems for customers. ABC Company sets up each contract as a project and records revenue and cost of sales to related projects, therefore, any time when project manager wants to know the margin and variance of each or all projects, a project report can be provided.
Example 2: XYZ Company is a property management agency, each property under their management is set up as a project, therefore rent and cost of sales, such as maintenance cost, repair cost, can be recorded to related property. With this way, project accounting is used as the tool for cost control for management to minimize cost and maximize profit.
If you think project accounting can help your business grow and improve your project management, please don’t hesitate to contact us and have a free consultation.