How do you set up a project accounting system for a new project?

1 Identify your project scope and objectives

The first step is to define your project scope and objectives, which will help you determine the expected deliverables, milestones, timelines, and budget of your project. Your project scope and objectives should be aligned with your client's requirements and expectations, as well as your organization's strategic goals and standards. You should also identify the key stakeholders, roles, and responsibilities involved in your project, and establish clear communication and reporting channels.

2 Choose your project accounting method

The next step is to choose your project accounting method, which will affect how you recognize and report your project revenues and costs. There are two main project accounting methods: the percentage-of-completion method and the completed-contract method. The percentage-of-completion method recognizes revenues and costs as the project progresses, based on the proportion of work completed. The completed-contract method recognizes revenues and costs only when the project is finished or substantially completed. The choice of project accounting method depends on several factors, such as the nature, duration, and complexity of your project, the reliability of your estimates, and the accounting standards and regulations applicable to your industry and jurisdiction.

3 Set up your project chart of accounts

The third step is to set up your project chart of accounts, which is a list of accounts that you will use to record and categorize your project transactions. Your project chart of accounts should be consistent with your organization's general ledger, but also tailored to your project's specific needs and characteristics. You should include accounts for your project revenues, direct costs, indirect costs, overheads, contingencies, and adjustments. You should also assign codes or numbers to each account, and use subaccounts or segments to further distinguish between different types of transactions, such as by phase, task, activity, or resource.

4 Establish your project budget and baseline

The fourth step is to establish your project budget and baseline, which will serve as the reference point for measuring and evaluating your project's financial performance and variances. Your project budget should reflect your best estimates of the total revenues and costs of your project, based on your project scope, objectives, and assumptions. Your project baseline should capture the approved version of your project budget, as well as other key parameters, such as the scope, schedule, and quality of your project. You should document and communicate your project budget and baseline to all relevant stakeholders, and update them as necessary to reflect any changes or revisions.

5 Implement your project accounting software and system

The fifth step is to implement your project accounting software and system, which will help you automate and streamline your project accounting processes and functions. Your project accounting software and system should be compatible with your organization's existing accounting and project management software and systems, and support your chosen project accounting method and chart of accounts. You should also ensure that your project accounting software and system have the features and capabilities that you need, such as invoicing, billing, payments, reporting, analysis, integration, security, and compliance.

6 Monitor and control your project accounting activities

The final step is to monitor and control your project accounting activities, which will help you ensure that your project is on track and within budget, and identify and resolve any issues or risks that may arise. You should perform regular and timely project accounting activities, such as recording, verifying, reconciling, adjusting, and closing your project transactions. You should also generate and review various project accounting reports, such as the income statement, the balance sheet, the cash flow statement, the budget vs actual report, and the variance analysis report. You should also communicate and collaborate with your project team, client, and other stakeholders, and provide them with accurate and relevant project accounting information and feedback.

7 Here’s what else to consider

This is a space to share examples, stories, or insights that don’t fit into any of the previous sections. What else would you like to add?