Project accounting and the software used to manage it

Project accounting is a way of tracking the money for one project at a time. It looks at what a single project earns, tracks the budget, the costs, and how much profit is left. Regular accounting looks at the whole company whereas project accounting looks at each project and treats it almost like its own small business.

Most companies do the work in two ways, some sell the same product or service again and again and others deliver projects. A project has a clear start and end, with its own budget, and its own goals. Some examples include building a bridge, designing a new office, and rolling out new software for a client.

Project accounting helps a company see how each of these projects are doing with money. It tracks the budget, the real costs as they happen, the bills sent to the client, and the profit at the end. This helps the team catch problems early. If a project starts to cost more than planned, the numbers show it while there is still time to act.

Project accounting is common in industries such as construction, engineering, architecture, and consulting. The article explains what project accounting tracks, how it differs from regular accounting, the terms people use, and the software that help run it.

What does project accounting track?

Project accounting tracks the money tied to one project from start to finish. It follows three main things: costs, billing and revenue, and profit. Each one is recorded against that single project, not mixed in with the rest of the company.

Costs

Costs are all the money a project spends. This can include wages for the people who work on it, materials, equipment, and payments to outside firms. Project accounting also tracks overhead, which is the shared cost of running the business, like rent or software, split across projects. Keeping costs at the project level shows exactly where the money goes.

Billing and revenue

Billing is the bills, or invoices, a company sends to the client for the work. Revenue is the money the company earns from the project. In project work, these two do not always happen at the same time. A client may be billed in stages, such as when the project reaches agreed points called milestones. Revenue may be counted based on how much of the work is done. Project accounting keeps track of both, so the team can see what has been billed and what has been earned.

Profit

Profit is what is left after costs are taken away from revenue. Project accounting shows the profit for each project on its own. This helps a company learn which types of projects make money and which do not. Over time, that knowledge can help it plan and price future work.

How is project accounting different from regular accounting?

The main difference between project accounting and regular accounting is the unit of focus. Regular accounting looks at the whole company over set periods of time, such as a month, a quarter, or a year. Project accounting looks at one project across its whole life, however long that takes. Other differences include:

• Regular accounting groups costs and income by type across the whole business, such as total wages or total sales and project accounting groups them by project, so each project has its own record.
• Regular accounting reports on fixed calendar periods but project accounting reports over the life of a project, which may run shorter or longer than a calendar period.
• Regular accounting answers how the company as a whole is doing whereas project accounting answers how each single project is doing.

Both use the same basic accounting rules. Project accounting simply adds a project layer on top, so the numbers can be viewed one project at a time as well as for the whole company.

Common terms in project accounting

A few terms come up often in project accounting. Knowing them makes the rest easier to follow. Here is what the most common ones mean in plain words.

Job costing means tracking all the costs of one job or project in one place. Many people use the words job costing and project accounting to mean almost the same thing.

Budget versus actual is a simple check. The budget is what the team planned to spend. The actual is what was really spent. Comparing the two shows if a project is on track.

Work in progress, often shortened to WIP, is work that has been done but not yet billed to the client. It sits between finished work and money received.

Percentage of completion is a way to measure how far along a project is. If a project is half done, the team may count part of the revenue to match. This links income to real progress.

Cost to complete is an estimate of how much money is still needed to finish the project. It helps the team see if the budget will hold.

Revenue recognition is the rule for when earned money can be counted as revenue. In projects, this is often tied to milestones or to percentage of completion.

A change order is a written change to the original plan. A client may ask for extra work or a different design. A change order records the new cost and scope so the budget stays correct.

Overhead, also called indirect cost, is the shared cost of running the business that is not tied to one project alone. Project accounting spreads a fair share of this cost across projects.

Who uses project accounting?

Project accounting tends to be used by companies whose work is built around projects. Any business that runs separate jobs with their own budgets can benefit from it.

It is common in construction, where each build has its own budget, timeline, and costs. Engineering and architecture firms use it to track design projects for different clients. Consulting firms and agencies use it to see if each client project is profitable. Government contractors often must use it, because they may need to report costs for each contract on its own. Film and media studios use a similar method to track the cost of each production.

In all of these, the reason is the same. The work comes in projects, so the money is easier to manage one project at a time.

Software used in project accounting

Project accounting can be done in a spreadsheet, but many companies use software to make it faster and more accurate. This software links costs, billing, and revenue to each project in one place. It often sits inside a larger system called an ERP, also known as enterprise resource planning, which ties together many parts of a business. Some tools focus on certain industries, such as construction.

The tools below are widely used for project accounting. Each works a little differently, so the right fit tends to depend on the size of the company and the industry it works in.

• Deltek: project-based ERP and accounting tools built for firms in areas like architecture, engineering, consulting, and government contracting.
• Oracle NetSuite: cloud ERP with a project accounting module that ties project costs, billing, and revenue to the general ledger.
• Sage Intacct: cloud accounting software with project accounting features for tracking costs, billing, and revenue by project.
• Procore: construction management platform with cost and financial tools that connect budgets, costs, and change orders on a build.
• Microsoft Dynamics 365 Business Central: business management software that includes project and finance tools for small and mid-sized firms.
• Trimble Viewpoint: construction ERP and accounting software built for contractors to manage job costs and project finances.

Conclusion

Project accounting is a way to track the money for one project at a time. It follows the budget, the costs as they happen, the bills sent to the client, and the profit at the end. This is different from regular accounting, which looks at the whole company over set periods. The main difference is the focus: one project across its whole life, rather than the whole business over a month or a year.

The method relies on a few common terms, such as job costing, work in progress, percentage of completion, and change orders. It is used most in project-based industries like construction, engineering, architecture, and consulting. Many companies use software to manage it, from broad ERP systems to tools built for a single industry. Used well, project accounting helps a company see how each project is doing with money, catch problems early, and plan future work with more confidence.

Frequently asked questions (FAQs)

What does project accounting mean?

Project accounting means tracking the money for one project on its own. It follows the budget, the real costs, the bills sent to the client, and the profit for that single project, instead of mixing everything into the whole company's books.

What is the difference between project accounting and regular accounting?

Regular accounting looks at the whole company over fixed periods, while project accounting looks at one project across its whole life. Both use the same basic rules, but project accounting adds a project layer so each job can be viewed on its own.

Is project accounting the same as job costing?

Project accounting is similar to job posting and people often use the two terms to mean the same thing. Job costing is the part that tracks all the costs of one job, and so it is part of project accounting.

Which industries use project accounting?

Industries that work in projects use it the most. This includes construction, engineering, architecture, consulting, agencies, and government contractors, because each job has its own budget and needs to be tracked on its own.

What software is used for project accounting?

Common tools include Deltek, Oracle NetSuite, Sage Intacct, Procore, Microsoft Dynamics 365 Business Central, and Trimble Viewpoint. The right choice tends to depend on the size of the company and the industry it works in.