Anyone who has experience with job costing or project accounting is all too familiar with the complexities involved in accurately tracking multiple projects and capturing the related financial data. There may be revenue associated to a particular project (or job), in addition to costs, potentially timecards, billing, and more. Effectively accounting for each of these components in a scalable way, requires a deliberate, methodical approach to setting up the underlying systems. It does not, necessarily, require a project accounting system.
There’s power in dimensions
There are many types of transactions that have financial impact. Depending on the nature of a particular transaction, certain pieces of information will be relevant for financial reporting and strategic decision making, while other pieces may not. It’s impossible to predict with absolute certainty what information is going to be relevant from industry to industry. It’s even challenging to do the same for companies within the same industry. That’s where dimensions come in.
Creating a multi-dimensional chart of accounts allows you to track unique objects within your general ledger, whether they’re vendors, customers, invoices, bills, or, in this case, projects. By mapping each transaction related to a particular project, to the unique identifier for that project, you can quickly generate reports to show project progress, revenue, expenses, margins, and more. For many industries that need to track projects for the purposes of assessing profit margins and variances from forecast, this structure provides all of the necessary data.
When in doubt, think from the sky down
If you’re wondering whether or not you need a project accounting system, first think about what information you need. At SoftLedger, we’ve found that most companies that use project accounting would be able to get the same information from multi-dimensional chart of accounts, simply by mapping the project ID to each journal entry related to a particular project’s transactions. In addition to not requiring a project accounting module, this structure allows for a simpler accounting system, which is less onerous to maintain and less prone to errors.
That said, this approach isn’t for everyone. If your company has interrelated projects with calculation dependencies or other complexities, you may need a project accounting system to track those transactions at scale. In any case, make sure you assess whether or not you need a project accounting system before your accounting system implementation. It may save you a lot of heartache.