Project accounting is one of the several different sub-types of managerial accounting. Project accounting is used to provide a feedback loop on production issues related to large scale set of complex functions. A good example of project accounting is the financial outcome related to the construction of a hospital, the erection of a tower or installation of a manufacturing process system.
Phase costing takes accounting to the next level. Phase accounting (costing and accounting are interchangeable at this level of detail) can only be used with job costing. It is designed to break a job down into distinct functions (stages) for analysis. It is a tool to identify discrepancies from estimates.
Construction accounting uses job cost reports to inform management of progress and existing issues with projects. There are several different sets of reports. The balance sheet set functions as an overall financial picture for the company.
There are basically three groups of financial based project reports. Each set has its own priorities and purposes. Project reports are a function of production reporting with the exception of the balance sheet set (commonly used for cash flow purposes).
In construction accounting, accountants and bookkeepers use certain terms and there are distinct meanings associated with these terms. This article is designed to introduce beginner accountants and contractors to these terms from the perspective of financial reporting.
To reduce risk and provide greater security to all parties the small construction company should consider branching out. What I mean is adding an additional class or line of construction work to the company’s portfolio so that in hard times there are more opportunities for work.
Almost every residential contractor I had as a client had no clue of their financial position as it related to any one of their residential contracts. None of them knew whether the project was fully funded, over funded or unfunded at any point in the construction process.
In the world of accounting, project accounting is a subset of financial accounting. Many folks believe it is a form of cost accounting and it is not.
