As the name simply states, project accounting refers to the specialized form of accounting that is focused on completing and delivering a project by keeping track of and reporting financial results and analysis. The process of project accounting includes preparation of financial reports catering specifically to a single or a specified group of projects. Traditionally project accounting has been kept for industries like construction, engineering, or government projects that are held one at a time, but with competition getting fiercer even in the consumer market, small and medium businesses are also now separating their tasks project by project. More commonly this is now a phenomenon for legal, financial, and technology industries, but other forms of businesses are also realizing the benefits of project accounting management.
The need for this form of accounting initially arose because businesses were required to provide certain projects individually and as separate entities. For instance a builder might have had to provide a bridge, a road, and a shipyard to three different government ministries and therefore had to keep the records of each project separate despite having the possibility of economies of scale. Furthermore, the nature of these three projects could have been drastically different from the regular projects of the said business and therefore needed to be treated as separate businesses altogether.
Salient Features of Project Accounting
- It requires a separate accounting center and system to report specified transactions, with regards to costs, revenues, assets, liabilities, accounts receivables and payables and so on.
- A process needs to be instilled to identify the specific costs and transactions related to the main accounting system as well as defining the proportionate versions to the project accounting.
- Frequent reporting and forecasting of cost projections needed to complete the project, often increasing in reporting frequency as the project nears completion.
How does project accounting help a business?
Project accounting is to standard accounting what specialization in production line is to vertical integration within a company. By employing specific project accounting software, professional accounting organizations can not only better manage the operations but also find out an eliminate any workflow issues.
Furthermore, project accounting is also helpful in identifying the individual problems and solutions of a project and therefore enables targeted resolutions of those issues. The benefit of tracking the budgets and revenues across every stage of the project is another benefit of this niche form of accounting that cannot be discounted. Having access to such a specialized software also means revaluating, reassessing and keeping up with the overall financial goals of the project and thereby the company.
Why do you need project accounting?
It’s not just the benefits of including project accounting into your business, but it is in fact the downside of not including it that should convince you of adding this form of accounting to your business operations. A staggering number of businesses fail because they miscalculate the costs and rewards of starting a new project. For instance you might have added two more outlets to your business and they both might be doing exceptionally well. But if you are going for a third, that in itself does not automatically mean that it will also be successful. Now you can always choose to shut down a shop if it is making losses, but what about the sunk cost that goes into its establishment and also the market reputation loss of not being competitive enough?
Sometimes it is not just the costs but also the projected completion time of any project. Let’s take the example of a road. You are in construction business and you receive a government contract that can change the trajectory of your business. However, you need to complete it before elections or you will lose your credibility forever. Then there is always the factoring in of required skill sets, professionals, experienced managers, as well as sufficient and appropriate leadership. Even if you are operating in a single industry with similar projects time and time again, it is always advisable to look at each project individually and tailor your financial analysis to the specific needs of that business.
How can Intersoft make all the difference?
At Intersoft, we not only have the complete realization of all the sensitivities and intricacies of financial and accounting segments of a business, we also have highly qualified professionals who understand the needs of timeliness, accuracy, and projections for any business. With skilled personnel, up to date technical abilities, and trustworthy cooperation on your project accounting, outsourcing this category of your operations might be the difference standing between you being a growing business and the market leader.
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