Project Costing

The Project Costing application helps you track income accrued and costs incurred during work on a project. Using Project Costing, you can set up projects, record time and material costs for the project’s phases and tasks, and create a billing invoice and close the project when work is complete.

Project Costing measures income in two ways: time and materials billing or job costing. The most notable difference between the two is the use of the term 'Work in Process', or WIP. In a time and materials billing environment, WIP represents the unbilled accrued income associated with costs incurred on a project. In a job costing environment, WIP simply represents the costs accrued to date.

While each project can measure income in only one way, Project Costing allows you to make this distinction on a project-by-project basis and can accommodate both project environments. If your company performs project work only in a job costing environment, you can elect to work only with Project Costing's job costing functions.

In addition to the two methods of tracking income, Project Costing allows you to record project phase and task information by using one of five project types. Project Costing uses a hierarchy of levels to define project structure: projects contain phases which in turn contain tasks. The project type you pick determines whether the project can use phases and tasks, accrue income, and allow billing. For more information on projects and project types, refer to your user's guide.

Project Costing works closely with the Traverse Accounts Receivable and Accounts Payable applications to track income and cost amounts. After you've defined your projects, use Project Costing's function to enter time costs and manage billing information, and the Accounts Payable (or Purchase Order) Transactions function to enter purchases and record material costs for project work. Project Costing tracks these entries for each project in a transaction history table that is updated each time you post information in either Project Costing, or Accounts Payable/Purchase Order.

As project work continues, use Project Costing's reports to analyze project progress and evaluate performance. When the project is complete, use Project Costing's built-in administrative functions to close projects and perform routine periodic maintenance.

Who uses Project Costing?

A company may measure its income in terms of the direct relationship income has to the time and material costs incurred in providing a product or service. Examples of this are engineering companies, advertising agencies, architectural firms and other such professional service companies. We will collectively refer to these companies as 'Time Billing' environments.

Other companies may incur time and material costs to provide a product or service for a customer or client but do not attempt to recognize income as a direct relationship to the costs incurred in doing so. Examples of this are construction companies, manufacturing job shops and other such build-to-order companies. We will collectively refer to these companies as 'Job Costing' environments.

Project Costing is designed to accommodate both types of environments. Project Costing interfaces with other Traverse applications for an accounting system that helps you deliver projects on time and within budget, then easily turn project costs into billings and income. A Project Type is assigned to each project. The project type for time billing environments is billable while the project type for job costing environments is 'Job Costing'. This project type determines how transactions are recorded in the system and how the accounting for those transactions are handled.

The most notable distinction from the user perspective between the two environments is the use of the term 'Work In Process' or 'WIP'. In a time billing environment, WIP represents the unbilled accrued income associated with costs incurred on a project. In a job costing environment, WIP represents the costs accrued to date on a project.

Most companies will be either a time billing environment or a job costing environment. However, Project Costing will allow you to make this distinction on a project by project basis, allowing you to have both project types coexist.

To illustrate the point of WIP being handled differently in the two environments, let's use an example where a timekeeper with an hourly cost of $25 and a billing rate of $50 charges one hour to a project.

In a time billing environment, the accounting entry would be to debit WIP $50, credit accrued income $50, debit cost $25, credit payroll clearing $25. In a job costing environment, the accounting entry would simply be to debit WIP $25, credit payroll clearing $25.

The Project Structure

All projects can be defined in terms of three levels, i.e., Project, Phase, and Task. The underlying costs associated with a project are categorized as either time or material. The term 'Resource' is used to describe the entity or source associated with the cost and corresponding income to be recognized. Projects can be assigned to customers; customers are set up in Accounts Receivable, and there is no limit to the number of customers or projects that can be set up.

When charges are made to a project, they can be made to any level in the project structure. Let's say that a project is structured to have tasks, and at least one of the tasks is structured to have phases. All charges can be made to the task level. When tasks and phases exist, charges can be made to the task and phase level. In this example charges can also be made to the project level.

Any number of projects can be set up for a given customer. When a project is selected within a specific customer context, you will see only those projects that were set up for that customer. The same holds true for phases and tasks in the context of the respective project and/or phase that are current.

Phase codes and task codes must be set up on a company-wide basis before they can be used in a project. This requirement is imposed to provide the ability to maintain a structure within the company that is conducive to making comparisons between projects. There is no limit to the number of phase codes and task codes that are used.

Project Types

Project types consist of general, job costing, and administrative projects. A project can have a billable or speculative status if you select the appropriate check box when creating the project.

Available project types include:

  • Administrative: Administrative projects are similar in nature to the 'Non-Billable' type. Income does not accrue and billings are never allowed. An administrative project can have phases or tasks. Also note that the year-end processing function will purge the transaction history file of all transactions related to this type.
  • Billable (General with the Billable check box selected): There are two types of billable projects: Projects that are not fixed fee projects accrue income with each cost incurred and billings are based upon those accruals, and billings for fixed fee projects that bill independently of the income accrued. For both types of billable projects, the total income accrual is reconciled to the actual billed amount and the difference is accounted for as either a write-up or a write-down before the project can be closed.
  • Non-Billable (General, with the Billable check box unchecked): A non-billable type represents a project, phase, or task that neither accrues income nor allows billings. The GL Distribution Code used should include the proper cost account to assure that the correct asset or expense account is debited when transactions are posted.
  • Job Costing: A Job Costing project is one which does not accrue income with each cost incurred but does allow billings. All costs incurred are accumulated for cost tracking purposes and accounted for in the General Ledger as Work In Process. Only fixed fee billings are allowed for this type. A function is provided to post deferred project costs and fixed fee billings to the cost and income accounts assigned to the particular project, phase, or task.
  • Speculative: A project set up as a General type with the Speculative box checked is considered a speculative project. A speculative type represents a project, phase, or task that also accrues income with each cost incurred. However, billings cannot be created for customers. This type is provided as a vehicle for assigning resources used to projects/phases/tasks that are prospective. A speculative project can be changed to 'Billable' or 'Job Costing', but a General Ledger journal entry may be required if different income and cost accounts will be used after it is changed. If it is changed to “Job Costing”, any income accrued to date will be ignored.

You can associate expense and other activity types with projects, as well as view detailed estimates for all activity types.

Before you can use the Project Costing application, you must set up the application by gathering your information, defining the projects you have set up for customers with which you do business, assigning codes and IDs, and setting up initial account balances. Follow these procedures carefully; the choices you make determine how the system operates.

Gather Your Information

Gather and organize the following accounting data:

  • A chart of accounts for your business.
  • Identification and credit information about your customers.
  • Previous- and current-year project activity histories organized by customer and project ID.

What You Need to Define

To set up the Accounts Receivable (if projects are assigned to customers) and project cost systems, follow these steps:

Use the Business Rules function to define how you want the system to work.

Define the IDs and codes you plan to use.

Set up tax classes, locations, and location groups.

Set up the phase and task codes you will use in your projects.

Use the Sales Reps function in Accounts Receivable to set up information about your sales representatives.

Use the Customers function in Accounts Receivable to define your customers, and assign customer price IDs and customer levels.

Set up the projects you currently have in progress.

Set up initial project balances.

Setting Up IDs and Codes

IDs and codes tell the system how to identify each item on file. The system uses these identifiers to organize information.

When you assign IDs and codes, establish a format that makes sense for your business and use it consistently. The following suggestions may help you to establish a useful format:

  • Do not use the following characters in an ID or a code: | “ ' & #.
  • To prevent organization problems, use zeros to make all IDs the same length. If IDs are divided into more than one part, the parts should be the same length in every ID. Do not use spaces to divide IDs into more than one part. For example, use ACE-01 and ACE-11 instead of ACE 1 and ACE 11.
  • If you use letters in IDs, use either all uppercase or all lowercase letters so that the IDs can be sorted correctly.
  • Use descriptive IDs. For example, WIN001 and WIN002 are more descriptive than 000001 and 000002.
  • If you want to sort items by a particular attribute—name or group—put the attribute in the ID. For example, to organize customers by name, put the first characters of the name of the customer in the customer ID.
  • Use a combination of letters and numbers that leaves room in the sequence for later additions. For example, WIN001 and WIN005 leave room for three IDs in between.

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