Accounting technology / Glossary / Project accounting

What is project accounting?

Definition

Project accounting tracks the revenue, costs and profit of each project or contract separately, alongside the company's overall books. Time, expenses, purchases and invoices are tagged to a project, so managers can compare actual costs with budget, bill clients on time and materials or milestones, and see which projects make money.

Also calledjob costingcontract accounting

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Tracks: Revenue, cost and margin per project
Billing types: Time and materials, fixed fee, milestones
Used in: Services, construction, agencies

How project accounting works

Each project gets a budget and a code. Timesheets bring in labour at a cost rate, and purchases, subcontractors and expenses are coded to the project as they are posted. Billing follows the contract: time and materials, fixed fee, milestones or retainers. The gap between work done and work billed is held as work in progress or unbilled revenue, and for long contracts revenue is recognised over time as the work progresses under IFRS 15 and ASC 606. Reports show budget against actual, margin, and estimate to complete. Project accounting is central in professional services, construction, agencies and research grants. Mid-market ledgers such as Sage Intacct, NetSuite and Business Central have project modules; smaller firms often use a project or practice tool that feeds the ledger.

Common questions

What is the difference between project accounting and job costing?+

They overlap. Job costing gathers the costs of each job, often in manufacturing or construction. Project accounting adds budgets, billing and revenue so profit can be tracked over a project's life.

How is revenue recognised on a long project?+

Usually over time as work progresses, measured by costs incurred against total expected costs or by milestones reached, rather than only when invoices are raised.

What is estimate to complete?+

The forecast of the remaining cost to finish a project. Added to costs so far, it gives the expected total cost, which shows whether the project will stay within budget.