What Is Project Accounting? Principles, Methods & More

What Is Project Accounting? Principles, Methods & More

Project accounting is a method by which project managers can manage project finances. It is not the same as balancing a checkbook or seeking the service of a certified public accountant, but it is essential in managing a project budget. Project accounting works by creating a detailed plan of project costs and managing them throughout project execution to make sure they're on budget. Documentation is required to record the project costs that are incurred throughout the project, as well as future-based costs of contracted delivery schedules and completion dates. Project accounting includes documenting the date legal agreements are signed with a customer, tracking earned revenues from sales agreements and identifying the costs related to each project phase.

Project accounting principles are important to help initiate, plan and establish metrics for accounting in projects, how to execute contracts, avoid scope creep and close out projects. There are eight main project accounting principles: Cost Principle, Matching Principle, Consolidation Principle, Full Disclosure Principle, Prudence Principle, Liability Principle, Control Principle, Resource Allocation Principle, and Accountability Principle. These principles help project managers track the actual costs of the project and adjust nonrecurring events to keep to their budget.