Project accounting: Best practices, tools, and tips

Project accounting vs. financial accounting: Key differences to know

Before I get to how to do project-based accounting well, let’s first look at what project accounting is. 

I tend to think it’s best to do this by setting it against the “financial accounting” processes handled by your company’s central accounting team. 

To stay on top of the financial health of an entire company, financial accounting: 

• Tracks income and expenditures for the whole organization 
• Is calculated after the fact, like at the end of each quarter
• Is given as standard financial statements like balance sheets, income statements, and cash flow statements, which the company then shares with external stakeholders

But, to track how a single department or team is handling the funds for their individual projects, project accounting: 

• Tracks the project-related financials of each initiative separately
• Is done continuously during the project lifecycle
• Is given in financial reports tailored to the project’s key performance indicators (KPIs), which reflect the work the team does and the payment methods they’ve chosen

Note: These reports are used by the teams internally so they can make informed decisions about their resource planning and financial management.  

When you split your project accounting process up from the rest of your company accounting, there are clear advantages. I notice a real difference in how easy it is for teams to measure the profit margins on their projects and how effectively they can respond to challenges during their work. This is because project accounting: 

• Tracks your expenses and income more accurately, as they stay tied to the tasks you’re completing
• Identifies waste, delays, and project scope creep more concretely, as you view your expenses in a much narrower context 
• Forecasts future projects more effectively, as you base your predictions on your past financial performance for similar work 
• Leaves more flexibility in your project financials, as you can view the data when it becomes available and make adjustments before you overrun your budget

With the key benefits of project accounting in mind, let’s look at how you can apply some of these key accounting principles to your work. 

How to get started with project accounting

When you want to know the actual costs and profits from your projects, rather than the income and expense metrics for your department as a whole, you’ll need to start with the four pillars of project accounting:

1. Job costing 
2. Project forecasting 
3. Resource management 
4. Revenue recognition

In each of these areas, you’ll find ways to separate your project finances and opportunities to start tracking them accurately. 

I’ll take you through each point in turn, so you can plan the best way to roll out your new project accounting system. 

1. Thoroughly document job costing 

Job costing (or cost estimation) is the allocation of your project budget to the moving parts of your work — like materials, staffing and labor costs, venues, catering, external teams, administrative costs, and so on. 

If you want to use project accounting to get an accurate picture of your project’s profitability, you have to start with a document that explains how you’ll spend the funds you’ve been allocated. 

For example, while a marketing team’s financial accounts might tell you how much you can budget to work with a video team over the course of the year, your job costing should allocate a specific amount to the video you’ll produce for this particular project. It can also be more effective to break large costs (like the video) into more specific expenses (like equipment hire and insurance, the billable hours spent scouting a location, and editing costs). 

When you have this detailed list of the expenses you’re planning for, your job costing will be: 

• More accurate, because you’ve considered the costs from every angle and reduced the chance of overlooking an expense
• More useful, because you’ll find it easier to compare your actual costs to the costs you planned once your project starts moving

How to improve job costing for your next project

To make your job costing more accurate (and your project accounting easier), you’ll need a fixed process for recording your costs. 

I should point out that this won’t necessarily improve your results for the first project you use your new accounting system for. However, when you start to build up this library of costs, quotes, and receipts, you’ll have a pool of data to draw on the next time you have to cost a job. 

This process doesn’t have to be difficult either. If you have a small team, it can be as simple as creating a shared folder for your receipts and an agreed system for naming the files so you know what you’re looking at later. 

Some companies and smaller teams will try to track their costs using spreadsheets, but it’s far more secure and reliable to use project accounting software with fixed workflows to do this. 

I’ll give you more details on tracking your expenses in Wrike later in this post.  

2. Create more accurate project forecasts

Project forecasting is the art of predicting a project’s costs, revenue, and timeline in advance, all of which will impact your project accounting later.

When you’re forecasting, you move beyond the decision making of budget allocation and into estimations of how long the project will take, how you’ll divide it into phases, how intense the work will be at each stage, and how you’ll map it against your client’s preferred completion method and dates. 

Forecasting should give you a reasonable idea of your project’s profitability, but it also serves another important role. As you forecast, you get to know potential challenges that could put your timeline at risk. This is your opportunity to budget time and money for contingencies where you can, which keeps you closer to your project accounting targets in the long run. 

How to forecast your projects more effectively 

Alongside job costing, forecasting is essential for your project accounting because it adds another layer to your project basis and gives you a plan to compare your actual work against later. 

Project managers don’t get a crystal ball, and it can be difficult to make your forecasting as accurate as your job costing. This being said, your forecasts will get more reliable if you base them on data from your past projects instead of assumptions, and if you update them as your project moves forward.  

Again, tools like Wrike, where you can track project progress, manage your workload, and recall reports and project files when you need them, help you to forecast in more detail and set yourself up to enjoy all the benefits of project accounting. 

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3. Make informed resource management decisions

Resource management is your plan for allocating resources to specific areas of your project, and your plan to optimize this distribution as your project progresses. 

If you really want your project accounting to be more informative than your financial accounting, you’ll need to consider all the resources you’ll use at the different stages of your project. 

This includes: 

• Busy periods for your project team, when you might need to pay more for staffing and overtime
• Periods of downtime while you wait for dependent tasks to be completed (I see this a lot with software development teams, who might have to wait for their work to be tested before it can be launched)
• Resources that need to be scheduled in advance, like booking that external video crew we mentioned above

A detailed resource management plan is the easiest way to make your project accounting more accurate. Because you’re monitoring your resource use so closely within the context of a specific project, you’ll be far more alert to the scheduling and costing issues that can eat into your profit margins.  

How to improve resource management

When you want to improve your resource management, turn your attention to waste and delays and strategize to reduce them. 

Something as simple as a bottleneck in your project’s approval workflow can throw off your timeline and increase your costs, so look at past projects, examine your project plan in detail, and find the places where it could go off the rails. If your team has worked together on a project before, this is also a good opportunity to ask for feedback. The people who use your workflows and know your clients well might have insights you can apply to make your resource allocation more efficient. 

4. Choose the best framework for revenue recognition 

In project accounting, you “recognize” revenue in your financial statements at certain milestones of each project rather than at the end of the financial period. This gives you a more accurate picture of how profitable your project has been. 

You have a lot of different revenue recognition structures to choose from, and they can suit different types of projects:

• Cost recovery, where the revenue is recognized after the revenue for the project exceeds your outlay
• Installments, where revenue is recognized bit by bit — for example, at the end of each month of the project or at predefined milestones
• Percentage completion, where the revenue is recognized based on what percentage of your project tasks have been marked complete
• Sales basis, where you don’t recognize revenue until the project is delivered to the client or sold to the customer, fulfilling your obligations in your agreement

The model you build your project (and your accounting) around is going to depend on the resources you have available for each stage of your project. This means that if you want to manage your project finances more effectively, it’s important to choose the right framework for the work you’ve agreed to complete. 

Put simply, the best way to master project accounting is to base your planning on solid evidence, report regularly on the financial health of your projects, and be prepared to make adjustments to your estimates and resource allocation as you learn more. 

And, in my experience, this means that the best way to improve your project accounting is by centralizing the latest information on your project finances, in one tool that’s easy for your team to use and update.

Effortless project accounting with Wrike 

If you’re serious about switching to a project accounting method to get deeper insights into your performance and make more informed decisions, the right tools are essential. 

Wrike is a collaborative work management platform that tracks and automates your processes in a workspace tailored to your team. Our platform is ideal for project-based work because you can set up accounting dashboards, folders, and workflows for all the individual projects you take on. 

When you manage projects in Wrike, you’ll also have a collection of accounting features and templates to plan your project accounting, track your budgets and expenses throughout your project, and help you forecast future projects more accurately.

Plan and track your budget in real time 

Tracking your income and expenses as they arrive is the cornerstone of project accounting. With Wrike, you can do it automatically and in real time — and ditch your accounting spreadsheets for good. 

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• Track financials across your projects. In your Wrike workspace, you can set financial fields like bill rate and estimated hours for each of your tasks. This gives you a granular level of detail in your job costing at the start of the project, and an ongoing overview of how your actual costs stack up to the plan as your work progresses. 
• Prioritize your resource planning. Wrike’s resource planning tools show you what your team needs and when, so managers can focus on removing the roadblocks to their work. What’s more, Wrike’s dashboards give you and your team a real-time overview of the work you need to prioritize — based on budget-related factors like percentage completion or team capacity — so you can direct your resources to the tasks that need them most. 
• Track time from your team and freelancers. Wrike includes automated timesheets populated with a team member’s tasks, updated as they work, and clearly divided into billable and non-billable hours. This keeps your budget up to date automatically and builds up a rich bank of data to use for project forecasting. 
• Track project risks with Wrike’s AI. One of the main benefits of project accounting is managing risks to your projects. With Wrike, you can automatically generate reports on your risk level based on the latest project updates. You’re alerted when the risk is medium, so you can step in to get your budget or your timeline back on track before a problem leads to higher costs. 

The accounting team at Gheen & Co, a certified public accounting firm in Colorado, relies on Wrike to manage risks. The team uses Wrike to manage accounts for individual clients all year round. Each client has a space to separate and protect their private financial information; the accountants can track their tasks effectively through the different processes they work with, so they’re able to work more efficiently as a result.

Wrike took us from no visibility and educated guesswork to a clear picture of each staff person’s workload and capacity during the busy season.

Cory LaPlante, Financial Analyst and Business Consultant

Close the gaps in your process with accounting integrations 

Wrike integrates with over 400 other tools, including accounting and invoicing software like Xero and Intuit QuickBooks. With these seamless integrations and automations, something as simple as a task status change can generate an invoice for your client when you reach the next stage of your project. 

Sync your timesheets with your billing platform to create accurate invoices, stress free.Wrike also stores and manages accounting documents so you never lose track of the information you need to complete your project accounts. 

Trifermed, a professional services company based in Barcelona, takes advantage of Wrike’s workspaces to maintain privacy between its clients, while centralizing the information the team needs to manage projects effectively: 

The company is completely set up on Wrike. Not just customer project management, but also the internal management of the company. If you ask me for an invoice from five years ago, I can find it in three clicks.

Prof. Dr. Sergi Trilla, Founder, President, and CEO

When you centralize your project accounting and the tools you use to do it, you can bridge the gaps in your accounting workflows. This reduces errors, stops essential financial updates from falling through the cracks, and makes sure you’re always basing your project management decisions on the most up-to-date information.

Communicate seamlessly with cross-tagged accounting files 

However much you come to rely on the insights from your project accounting, these processes can’t replace the financial accounting that needs to be done for your company as a whole. But, when you use Wrike to manage the finances for your individual projects, you can make your other accounting processes more efficient, too. 

For example, imagine you’ve set up a folder with all the expenses for a project your team is completing in Q2. This folder can exist in the project workspace, but you can also cross-tag the folder to a workspace for your company accountants, so they’ll have easy access to the documents when they have to present their financial statements at the end of the period. 

There’s no need to chase the invoices and receipts at the end of the quarter, and no chance of duplicating the documents. Everyone’s work becomes more efficient, and you get a far more accurate picture of your financial health as a result. 

Use purpose-built accounting templates to get started

The beauty of Wrike is that you can streamline your workspace for your team and the projects they have coming up. When you’re setting up your space, these templates can help you get started fast and integrate project accounting principles from the beginning:

• Monthly budget tracker template to manage your finances and avoid cost overruns
• Professional services management template for efficient planning and delivery, with a built-in time log and responsive Gantt chart timeline 
• Services scoping and initiation template to capture key information and define your project scope (and budget) more accurately 
• Complex project with phases template to break down your projects into manageable phases for more accurate task tracking and resource management
• Invoice tracking template to store, monitor, and manage multiple invoices in a secure hub
• Project risk analysis template so you can gauge, classify, communicate, and mitigate risks to your project milestones and budget while you still have time to redirect

For successful project accounting, choose Wrike

Need to manage individual projects for your clients? I’ve found massive benefits to separating project finance tracking from the way company accounts are managed more generally. 

With the tools to plan and forecast your project finances, track your expenses, and report on the latest developments, project accounting makes it easier to budget — and easier to optimize your approach by eliminating waste and delays during your projects. 

Wrike puts all your essential expense planning, tracking, and reporting tools at your fingertips and integrates with your favorite CRM, project management, and accounting apps to account for every element of your work.

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