Project accounting procedures help a corporation record operating transactions when a project is in progress. Senior management ensures these procedures adhere to U.S. generally accepted accounting principles, or GAAP, and international financial reporting standards, or IFRS. They also ensure project accounting methods comply with generally accepted government accounting standards, or GAGAS.
U.S. GAAP, IFRS and GAGAS require a firm to record asset purchases at market values. A company usually buys assets in the early stages of a project or when work is in progress. An asset is an economic resource that a company sponsoring a project owns. It may be a short- or long-term asset. A short-term asset is a resource a project manager uses in 12 months or less, such as cash or inventories. A project manager uses a long-term asset for more than a year. Examples of long-term assets or fixed assets include a plant, machinery and land. A project accountant debits an asset account to increase its amount and credits it to reduce the account balance.
Accounting procedures also require a company to record liabilities at market values. A liability is a debt that a company sponsoring a project must repay. It may be a short-term liability or long-term debt. A sponsoring company must repay a short-term debt, such as accounts payable, within 12 months. It must repay a long-term debt, such as bonds payable, after a year or more. A project bookkeeper debits a liability account to decrease its amount and credits it to increase the account balance.
A company sponsoring a project recognizes or records costs at fair or market values. A cost or loss is an expense that a company incurs when a project is in progress. Examples of project costs include cost of raw materials, salaries, interest expense and administrative expenses, such as rent and utilities. A project accountant debits an expense account to increase its amount and credits it to reduce the account balance.
Project Financial Reporting
Accounting procedures require a project accounting manager to prepare financial reports that are accurate, complete and conform to U.S. GAAP, IFRS and Securities and Exchange Commission (SEC) financial reporting guidelines. A complete set of project financial statements include a statement of financial position (also known as balance sheet), statement of income (otherwise called statement of profit and loss, or P&L), statement of cash flows and statement of equity (or statement of retained earnings). A project accounting manager also prepares interim financial reports to instruct management on cost variances or differences and work progress.