Tracking the financial performance of the project is crucial for any organization to know the revenue generated, profit or loss, efficiency of the work done, and more. The process through which this is done is project accounting, which also keeps track of the budget utilized and resource allocation and manages the cost.
Project accounting is a complex technique for gathering financial information. One must follow the principles of project accounting to prevent discrepancies or duplication. These tasks are not easy for project accountants. So, it has been seen that many people are looking for tools or software that can ease their work.
Surprisingly, many project accounting softwares have been developed now, using which project accountants can manage project finances quickly and efficiently. They can keep track of all the tasks and budgets and generate financial reports in seconds. Know the complete insights of using the software and simplify your work.
An Overview Of Project Accounting
Project accounting is the process used to track the finances of the project. Finances include budgets, costs, and expenses for the whole project. Summarising all these is important for every business because all other parameters of the project’s performance are linked with it. If we have a toll to track all these, it will be a plus point.
Principles Of Project Accounting
A project must be executed in such a way that we get results in our budget. However, a set of principles must be followed to set up various accounting metrics for a project.
1. Cost Principle
The cost of the project must be less than the estimated market value, so the original value must be taken as its final cost. For example, if you bought the software for $800, but its market value is $1200, then you must consider $800 as its final cost.
2. Matching Principle
This is the most significant accounting principle of any project. Every expense of the project must be recorded in the same accounting period in which they contribute to the project revenue.
3. Consolidation Principle
Over a certain period of time, management can combine other similar or related tasks with the existing project, as this will bring consistency in the overall cost. Here, you have to use only one place to keep track of all the financial activities of the project. So, you have to find a systematic way to work on all tasks side by side, along with tracking the revenue and cost.
4. Full Disclosure Principle
Management is supposed to maintain proper financial statements with a record of all the events that occurred in the project. Thus, there will be complete transparency between all the parties involved in the project, which will eventually increase their responsibilities.
5. Prudence Principle
According to the prudence principle, the management team will work on the actual cost and revenue of the project. After going through the whole team’s approximation, they will give the estimated value for revenue and expenses.
6. Liability Principle
Management has to take care of all the liabilities that have to be paid if a contract is broken. This might occur during the later part of the project, and the costs to be paid can be either financial losses or contractual penalties.
7. Resource Allocation Principle
In this principle, it has to be noted that only the project manager or resource manager has the right to allocate resources to the project. The decision is totally up to them; they can calculate the financial risks and benefits of the project and then decide what to do.
8. Control Principle
The tracking of all the associated financial activities must be controlled, and this principle is made for the same. The management must implement the process for tracking finance so that it makes the monitoring of the project’s performance for the manager.
Doing all these manually is going to be time-consuming, which no one would like to do. So, to cut short our time and keep track of all the activities, we can use project accounting software.
How To Use Project Accounting Software?
Various steps are to be taken into consideration while using the Project Accounting Software. Here is a brief explanation for each of them.
Find The Right Software
Smooth operations are a must, so you should find the best Project Accounting software according to your needs. You should check your requirements and then find the features that match with them. Also, check the interface, security, support system, pricing, and feedback given by other users. Once you are satisfied with the one software, proceed with it.
Setup the Software
The next thing is to create your account on the project accounting software. To set the software, edit the basic settings, add the details of the user account, and enable all necessary permissions to have a smooth experience.
Add Projects
The first thing that has to be done after setting up the software is to add your project details. These details include the project code, project manager, and start and end dates of the project. If you add all the projects separately, the process of assigning costs and revenue will be made easy. Also, you can smoothly keep track of each project’s financial performance.
Manage Budget And Track Expenses
The success of a project depends on its budget and expenses. Accounting software can help you manage the budget by tracking expenses, resources, and revenues, and it can also help you easily find the right plan for the project. Check all the necessary details and make changes accordingly if needed.
Allocate Costs And Revenues
Allocate the costs and revenues for each project while entering the transaction details so that there is no duplication, and the financial data is accurate. The costs can be labor or material or any other expenses, including administrative.
Track Time And Resources
Tracking time and allocating resources is very important to meet the project deadline. The project accounting software will help you track the time your employees have been working on the project. You can further check the labor cost and generate the invoice using this data. It is also helpful in tracking how effective is the resource allocation for your project.
Analyze The Reports Generated
The software provides you with various reports that can help you analyze the project’s performance in all aspects, including its progress and finances. You must check the reports regularly so that if there is any error, it can be resolved on time. It will also help you in making strategies to optimize the project output.
Integrate With Other Business Tools
Some project accounting softwares can connect with other business tools so that data is grouped in a single place, enhancing the project’s efficiency. These business tools may include CRM, project management, and more.
Generate Final Report
After completing the project, close it and generate the final financial report using the software to evaluate the success and find the areas in which you have improved.
Conclusion
Accounting is not easy; we have to track so many finances, make reports, and most importantly, we have to make sure that the data is accurate. If you are handling a number of projects, there are chances of errors, and to solve this, project accounting software is now available in the market.
You have to follow some principles, choose the best software as per your requirements and then set up your project. Within the software, you will be able to manage budget and expenses, allocate costs and resources, and track the time and revenues of the project. It will give you all the reports to analyze the performance of your project and finally generate the financial report after the completion of the project.
