For companies that operate on a project basis, it is essential to know which projects are actually generating profit. Many companies have a good overview of their overall revenue but lack insight into the profitability of individual assignments. This is where project accounting comes into the picture.
Project accounting is a method of recording, monitoring and analyzing the income and costs associated with a specific project. Its purpose is to provide management with an accurate picture of the project’s financial performance and ensure that the project is completed within its financial framework.
What is project accounting?
Project accounting tracks all income and expenses related to a specific project. Unlike traditional accounting, which provides an overview of the company’s overall financial situation, project accounting focuses on individual deliveries or assignments. This makes it possible to measure profitability at the project level.
Project accounting is used across a wide range of industries, including:
- Construction and engineering
- Consulting services
- IT and software development
- Engineering and advisory firms
- Grant-funded and publicly funded projects
For companies managing multiple projects simultaneously, project accounting is an important management tool that provides insight into how resources are used and which projects contribute the most to the bottom line.
Why is project accounting important?
Without project accounting, it can be difficult to determine whether a project is profitable until it has been completed. By monitoring a project’s finances on an ongoing basis, companies can identify deviations early and take corrective action when necessary.
Some of the key benefits include:
- Better cost control
- Visibility into profitability by project
- Improved resource management
- More accurate quotations and estimates for future projects
- Documentation for audits and public funding programs
Which costs should be included?
A well-structured project accounting system should include all direct costs related to the project.
Typical costs include:
- Salaries and working hours
- Employer’s national insurance contributions and employee-related costs
- Materials
- Subcontractors
- Travel and accommodation expenses
- Software and licenses
- Equipment and machinery rental
In construction and engineering projects, time tracking is particularly important. Timesheets provide the basis for calculating labor costs that should be allocated to the project.
Example 1: Consulting Project
An IT company carries out a project for a client.
Project Revenue:
- Customer invoiced: NOK 500,000
Project Costs:
- Consultant hours: NOK 220,000
- Employer’s National Insurance Contributions and pension costs: NOK 55,000
- Travel expenses: NOK 10,000
- Software licenses: NOK 15,000
Total costs: NOK 300,000
Project profit: NOK 200,000
Without project accounting, this profit could be hidden within the company’s overall financial results.
Project accounting in the construction industry
In Norway, there are specific requirements for project accounting in the construction sector. Under the bookkeeping regulations, construction projects with a contract value exceeding five times the National insurance Basic Amount (5G), which currently corresponds to NOK 682,745 excluding VAT, must be recorded in a separate project accounting system. This project accounting must include, among other things, a project code, information about the client, revenues and direct costs. Supporting documentation such as contracts, estimates, timesheets and accounting vouchers must be retained for 10 years.
One of the main reasons for this requirement is the need to monitor revenues and costs in projects that often extend over several years.
Example 2: Construction Project
A contractor is constructing a commercial building.
Contract value: NOK 8,000,000
Costs:
- Employees: NOK 2,800,000
- Materials: NOK 2,500,000
- Subcontractors: NOK 1,200,000
- Machinery and equipment: NOK 300,000
Total costs: NOK 6,800,000
Project profit: NOK 1,200,000
With project accounting, the contractor can monitor profitability month by month and quickly identify whether material consumption or working hours exceed planned levels.
Digital tools for project accounting
Many accounting and ERP systems make project accounting significantly easier than before. These systems allow users to allocate hours, invoices, expenses and revenues directly to specific projects.
Tripletex is a modern accounting system with strong project accounting functionality. The system makes it easy to monitor project costs, working hours and profitability at the project level.
Key features include:
- Employees can register hours directly to the correct project via a mobile device or computer.
- Travel expenses, out-of-pocket expenses and supplier invoices can be linked directly to the project.
- Time and expenses can be re-invoiced to the customer once the work has been completed.
- You can instantly see project costs, revenue and profit margin.
By combining project accounting with time tracking and automated workflows, management gains continuous insight into the project’s financial performance.
Contact us
Would you like better control over the profitability of your projects? We have extensive experience in project accounting and help companies establish effective routines, select the right systems, and gain a clearer overview of their project finances. Contact us today to discuss how we can support your business.
